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City Equipment announced this morning that its next annual dividend will be decreased to $1.90 a share and that all future dividends will be decreased by an additional 1.9 percent annually. What is the current value per share if the required return is 16.8 percent?

Sagot :

Abiolataiwo2015idn

Answer:

$10.16

Explanation:

Calculation for What is the current value per share if the required return is 16.8 percent

Using this formula

Current value per share Decreased in Annual dividend/Decreased in future dividends +Required return

Let plug in the formula

Current value per share =$1.90/1.9 percent+16.8 percent

Current value per share =$1.90/0.187

Current value per share =$10.16

Therefore the current value per share if the required return is 16.8 percent will be $10.16

Tundexiidn

The required return is 16.8 percent, the current value per share will equals $10.16

Current value per share = Expected Dividend / (Required return - Growth rate)

Current value per share = $1.90 / (16.8%-(-1.9%))

Current value per share = $1.90 / $18.7%

Current value per share = 10.1604278

Current value per share = $10.16

Hence, since the required return is 16.8 percent, the current value per share will equals $10.16.

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