Question

Antiques ‘R’ Us is a mature manufacturing firm. The company just paid a dividend of $11.45, but management expects to reduce the payout by 4.5 percent per year, indefinitely.

Required:
If you require a return of 11 percent return on this stock, what will you pay for a share today?

Answer 1

9.00

Answer 2

P0 = D0 (1 + g) / (R – g)
P0 = $11.45(1 – .045) / [(.10 – (–.045)]
P0 = $70.55

Answer 3

P0 = D0 (1 + g) / (R – g)
P0 = $11.45(1 – .045) / [(.11 – (–.045)]
P0 = $70.55