Basic Finance Herbert Mayo. Please show the calculation with the formula.

QUESTION

Last year Artworks, Inc. paid a dividend of $3.50. You anticipate that the companys growth rate is 10 percent and have required rate of return of 15 percent for this type of equity investment. What is the maximum price you would be willing to pay for the stock?
As companys growth rate is 105, its dividend is also expected to grow at least 10%. So, dividend will be = 3.5*1.1 = 3.85 ($) Required rate of return = 15% So, dividend/ price = 0.15 Hence,

ce = dividend/0.15 = 3.85/0.15 = 25.67 ($) This is the maximum price that can be paid to ensure a return of minimum !5% (ANSWER),

ANSWER:

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