Answer to Question #111581 in Finance for Multiplechoice

Question

A has just announced a dividend of 16p. Investors expect its dividend to grow in the future at a rate of 6% and they require a rate of return of 15% from their shares. What is the company's current cum-div share price?

Answer 1

Current cum-div share price is:

P0 = Current dividend + Ex-dividend share price = $16 + 16*\frac{(1 + 0.06)}{0.15 - 0.06} = 204.44.$