Metasteel Limited Co. has a stable sales track record, but does not expect to grow in the next several years. Its last annual dividend was $5.75. If the required rate of return on similar investments is 18 percent, what is the current stock price? (Round the answer to two decimal places.)
A) $103.50
B) $13.50
C) $39.30
D) $31.94

Question

Quizplus · Accepted Answer

We will use the dividend discount model to find the current stock price.
Current Stock Price = Dividend / Required Rate of Return
Current Stock Price = $5.75 / 0.18 = $31.94
Therefore, the correct answer is D, $31.94.