Current value of a share
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The Foreman Company's earnings and common stock dividends have been growing at an annual rate of 6 percent over the past 10 years and are expected to continue growing at this rate for the foreseeable future. The firm currently (D0) pays an annual dividend of $5 per share. Determine the current value of a share of Foreman common stock to investors with each of the following required rates of return:
a. 12 percent
b. 14 percent
c. 16 percent
d. 6 percent
e. 4 percent.
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Solution Summary
This explains the steps to find the current value of a share.
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a. 12 percent
P0= Div1/(Ke-g)= $88.33 =Answer
Note:
G=Growth 6%
Ke= Cost of equity 12%
Div1= Current dividend *(1+g) =5.3.
b. 14 percent
P0= ...
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