Hudson Corporation will pay a dividend of $3.00 per share next year. The company pledges to increase its dividend by 3.60 percent per year indefinitely. If you require a return of 7.10 percent on your investment, how much will you pay for the company's stock today

$85.71

Explanation:

To calculate the price to pay for the stock of Hudson Corporation, we use the dividend discount model formula stated as follows:

P = Next year dividend ÷ (r - g) (1)

Where,

P = stock price today = ?

Next year dividend = $3.00

r = required return = 7.10% % = 0.071

g = dividend growth rate = 3.60% = 0.036

These above values are now substituted into equation (1) as follows:

P = 3 ÷ (0.071 - 0.036) = 3 ÷ 0.035  = $85.71

Therefore, I will pay $85.71   for Hudson Corporation's stock today.

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