Stacker Weight Loss currently pays an annual year-end dividend of $1.20 per share. It plans to
QUESTION
Stacker Weight Loss currently pays an annual year-end dividend of $1.20 per share. It plans to increase this dividend by 5% next year and maintain it at the new level for the foreseeable future. If the required return on this firms stock is 8%, what is the value of Stackers stock?
Current Year Dividend = $1.20 per share Constant Growth = 5% p.a. Required Rate of Return on Stock = 8% Value of Stackers Stock = Current Year Dividend * (1 + Constant Growth)
/ (Required rate of return Constant Growth) Or, Value of Stackers Stock = $1.20 * (1.05) / (0.08 0.05) = $42.00
ANSWER:
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