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Vandalay Industries is an established company in a mature industry. They currently pay an annual dividend of $2.50 per share and expect to continue to do so indefinitely. If investors require a 12 percent return on stock of this risk, what should Vandalay's current share price be? $20.83 $20.00 $25.00 $21.99

Respuesta :

Answer:

Current share price = $20.833

Explanation:

Given:

Annual dividend = $2.50 per share

Required rate of return = 12% = 12 / 100 = 0.12

Dividend growth rate = 0

Current share price = ?

Computation of current share price:

Current share price = Annual dividend / (Required rate of return/Dividend growth rate)

Current share price = 2.50 / (0.12 - 0)

Current share price = $20.833

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