Schnusenberg Corporation just paid a dividend of D₀ = $0.75 per share,and that dividend is expected to grow at a constant rate of 6.50% per year in the future.The company's beta is 0.75,the required return on the market is 10.50%,and the risk-free rate is 4.50%.What is the company's current stock price? Do not round intermediate calculations.

Question

Quizplus · Accepted Answer

Using the constant growth dividend model, we have:
Stock price = D1/(r-g)
where D1 = D0(1+g) = $0.75(1+0.065) = $0.795
r = 4.50% + 0.75(10.50% - 4.50%) = 9.75%
g = 6.50%
Plugging in the values, we get:
Stock price = $0.795/(0.0975-0.065) = $31.95
Therefore, the current stock price is $31.95. Answer choice D is correct.

Schnusenberg Corporation Just Paid a Dividend of D0 = $0

Schnusenberg Corporation Just Paid a Dividend of D₀ = $0