Leon and Louisa are considering the purchase of ordinary share that paid a dividend of $4.00 yesterday. The long-run normal growth rate is expected to be 10% (that is, a constant growth rate of 10% per year forever). If you require a 12 percent rate of return, compute the current share price of the firm.

Leon and Louisa are considering the purchase of ordinary share that paid a dividend of $4.00 yesterday. The long-run normal growth rate is expected to be 10% (that is, a constant growth rate of 10% per year forever). If you require a 12 percent rate of return, compute the current share price of the firm.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Last year Artworks, Inc. paid a dividend of $1.80. You anticipate that the company's growth rate is 4 percent and have a required rate of return of 10 percent for this type of equity investment. What is the maximum price you would be willing to pay for the stock? Round your answer to the nearest cent. $
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