Westover Winds just paid a dividend of $2.10 per share.The company will increase its dividend by 8 percent next year and will then reduce its dividend growth rate by 2 percentage points per year until it reaches the industry average of 2 percent dividend growth,after which the company will keep a constant growth rate forever.What is the price of this stock today given a required return of 11 percent?
A)$26.54
B)$28.99
C)$31.83
D)$32.06
E)$32.47

Question

Quizplus · Accepted Answer

The correct answer is A. The price of the stock today is $26.54.The dividend growth rate will be 8% next year, 6% the year after that, 4% the year after that, and 2% thereafter. The required return is 11%. The price of the stock today is:P0 = D1 / (r - g)= 2.10 / (0.11 - 0.02)= $26.54

Westover Winds Just Paid a Dividend of $2