You believe that Nonstick Gum Factory will pay a dividend of $2 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 6 percent a year in perpetuity. If you require a return of 12 percent on your investment, how much should you be prepared to pay for the stock?© BrainMass Inc. brainmass.com June 3, 2020, 10:07 pm ad1c9bdddf
To solve this problem (a growing perpetuity) the following formula ...
This solution calculates the stock price of a company based on dividend payments, growth rate and required rate of return.