The border crossing just paid an annual dividend of $4.20 per share and is expected to pay annual dividends of $4.40 and $4.50 per share the next two years, respectively. after that, the firm expects to maintain a constant dividend growth rate of 2 percent per year. what is the value of this stock today if the required return is 14 percent?
a. $30.04
b. $32.18
c. $33.33
d. $35.80
e. $36.75.

option (E) $36.75

Explanation:

Given:

Dividend growth rate, g = 2% = 0.02

Required return, r = 14% = 0.14

Now,

The value of the stock

= Present value of ( Dividend of 4.40 to be received next year + Dividend of 4.50 to be received the year after the next year  + Value of the share as at the beginning of the third year )

Thus,

The price of the share

= +

= + +

= 3.86 + 3.46 + 29.43

= $36.75

Hence,

the correct answer is option (E) $36.75

answer; test-retest;

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