CS Markets has 84500 shares of stock outstanding The firm pa

CS Markets has 84,500 shares of stock outstanding. The firm paid out $68,200 in dividends this year and expects their total dividends to increase by 3.5 percent per year. The required return is 12 percent. What is the share price?

Select one:

A. $7.64

B. $8.47

C. $6.20

D. $9.83

E. $9.50

Solution

Expected Dividend in Year1 = $ 68,200 * 103.5%

= $ 70,587

Expected Dividend Per Share in Year1 = $ 70,587 / 84,500

= $ 0.835349112

The share price = Expected Dividend in Year1 / ( required return- growth rate)

= $ 0.835349112 / ( 12% -3.5%)

= $ 9.83

Hence the correct answer is D. $ 9.83