The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.26 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Required: (a) If investors require a 10 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price?
Answer: current price of The Jackson-Timberlake Wardrobe Co. stock is = $ 21.84
Working notes for the above answer
Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.26 per share on its stock
grow at a constant rate of 4 percent per year indefinitely
investors require a 10 percent return on The Jackson-Timberlake Wardrobe Co. stock
D= 1.26
g= 0.04
r= 0.10
Calculation of current price of The Jackson-Timberlake Wardrobe Co. stock is as follow
Po = 1.26 * 1.04 /.10-.04
=$ 21.84
