After One Year, a Company Will Pay $20 in Dividends

question 46

Essay

After one year, a company will pay $20 in dividends. It commits to paying $21 two years from the current date. This growth rate in dividends is expected to continue indefinitely. The interest rate is 8%. Compute the current price of this stock, using the dividend-discount model.

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Definitions:

Assets

Resources owned by a business or individual that have economic value.

FASB

The Financial Accounting Standards Board, an independent organization responsible for establishing accounting and financial reporting standards in the United States.

IASB

The International Accounting Standards Board, an organization that establishes accounting standards known as International Financial Reporting Standards (IFRS) that guide the preparation and reporting of financial statements globally.

Financial Information

Data about a company's past, present, and future financial health and performance.