Knowee
Questions
Features
Study Tools

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $7.92 per share on its stock. The dividends are expected to grow at a constant rate of 4.71 percent per year indefinitely. Investors require a return of 13.6 percent on the company's stock.What is the current stock price?

Question

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $7.92 per share on its stock. The dividends are expected to grow at a constant rate of 4.71 percent per year indefinitely. Investors require a return of 13.6 percent on the company's stock.What is the current stock price?

🧐 Not the exact question you are looking for?Go ask a question

Solution

The current stock price can be calculated using the Gordon Growth Model (also known as the Dividend Discount Model), which is a method used to determine the intrinsic value of a stock, exclusive of current market conditions. The model assumes that dividends grow at a constant rate.

The formula for the Gordon Growth Model is:

P = D / (r - g)

where: P = price of the stock D = dividend just paid r = required rate of return g = growth rate of dividends

Given in the problem: D = $7.92 r = 13.6% or 0.136 (in decimal form) g = 4.71% or 0.0471 (in decimal form)

Substituting these values into the formula, we get:

P = 7.92 / (0.136 - 0.0471)

Now, calculate the denominator (0.136 - 0.0471) = 0.0889

Then, divide the dividend by the result:

P = 7.92 / 0.0889

Finally, calculate the value to get the current stock price:

P = $89.09

So, the current stock price of the Jackson-Timberlake Wardrobe Co. is approximately $89.09.

This problem has been solved

Similar Questions

The Co. just paid a dividend of $1 per share. Analysts expect its dividend to grow at 25 percent per year for the next three years and then 5 percent per year thereafter. If the required rate of return on the stock is 18 percent, what is the current value of the stock?

Pasha Entertainment, Inc. is expected to pay the following dividends over the next four years: $6, $12, $17, and $3.25. Afterward, the company pledges to maintain constant 5% growth rate in dividends, forever. If the required return on the stock is 11%, what is the current share price?

A stock just paid a dividend of $4.25 and is expected to maintain a constant dividend growth rate of 4.4 percent indefinitely. If the current stock price is $72, what is the required return on the stock?

Richard, Inc., will pay a quarterly dividend per share of $1.15 at the end of each of the next 12 quarters. Thereafter, the dividend will grow at a quarterly rate of 1.7 percent forever. The appropriate rate of return on the stock is 12 percent, compounded quarterly. What is the current stock price?

A company has been paying a $0.68 dividend and as it faces no growth opportunities it is expected that the dividend will not change in the future. If investors require a 24.98% return for this company, what is the share value. (Please round your answer to the nearest cent but exclude the $ sign when typing your answer.)

1/3

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.