Popovich Corp. is just about to pay an annual dividend of $3.08 per share. Inves
ID: 2620480 • Letter: P
Question
Popovich Corp. is just about to pay an annual dividend of $3.08 per share. Investors anticipate that the annual dividend will rise by 4.88% a year forever. The applicable annual discount rate is 10.72%. What is the price of the stock today? Hint: apply the constant dividend growth model to determine the value of the future annual dividends. Then add the dividend that will be paid soon to this result. Do not round at intermediate steps in your calculation. Round to two decimal places. Do not type the $ symbol.
Explanation / Answer
Recent Dividend, D0 = $3.08
Growth Rate, g = 4.88%
Required Return, r = 10.72%
D1 = D0 * (1 + g)
D1 = $3.08 * 1.0488
D1 = $3.2303
Price of Stock = D1 / (r - g)
Price of Stock = $3.2303 / (0.1072 - 0.0488)
Price of Stock = $3.2303 / 0.0584
Price of Stock = $55.31