The Brennan Co. just paid a dividend of $1.40 per share on its stock. Dividends are expected to grow at a constant rate of 6% per year indefinitely. If investors require a 12% return on Brennan Co. stock, what is the current price?

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Answer to a math question The Brennan Co. just paid a dividend of $1.40 per share on its stock. Dividends are expected to grow at a constant rate of 6% per year indefinitely. If investors require a 12% return on Brennan Co. stock, what is the current price?

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107 Answers

1. Calculate the expected dividend next year:

D_1 = D_0 (1 + g) = 1.40 \times (1 + 0.06) = 1.484

2. Substitute the values into the formula:

P_0 = \frac{D_1}{r - g} = \frac{1.484}{0.12 - 0.06}

3. Calculate the price of the stock:

P_0 = \frac{1.484}{0.06} = 24.73

So, the current price of the stock is

24.73

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