Answer to Question #111665 in Finance for shawn

Question

the
company
Old
Co has a
current stock
price of $210 per share
. L
ast year
they
paid an
annual dividend of $10 per share. Historically the dividend growth was 5% per year
;
the next
dividend
payment will be $
1
0.50
. What is the discount rate implied by this firm?

Answer 1

The formula for share price is:$P = D0*(1 + g)/(r - g)$,

$r = D0*(1 + g)/P + g = 10*1.05/210 + 0.05 = 0.1.$