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Dee's made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.58 a share. Secondly, all dividends after that will decrease by 1.15 percent annually. What is the value of this stock at a discount rate of 15.5 percent?a.$9.49 b.$10.10 c.$9.82 d.$10.51 e.$11.01.

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Shahzaibfaraz

Answer:

The price per share today is a.$9.49

Explanation:

The value of the stock today can be calculated using the constant growth model of the DDM. The constant growth model is applicable when dividend are growing at a constant rate forever. the growth rate here is negative thus g will be -1.15%

The formula for Constant growth model is,

Price = D1 / r - g

Using the formula, we calculate the price per share today to be:

Price = 1.58 / (0.155 + 0.0115)

Price = $9.49