Antiques ‘R’ Us is a mature manufacturing firm. The company just paid a dividend of $12.40, but management expects to reduce the payout by 5.25 percent per year, indefinitely. Required: If you require a return of 8 percent on this stock, what will you pay for a share today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current share price $ Explanation: The constant growth model can be applied even if the dividends are declining by a constant percentage, just make sure to recognize the negative growth. So, the price of the stock today will be: P0 = D0 (1 + g) / (R – g) P0 = $12.40(1 – 0.0525) / [(.08 – (–.0525)] P0 = $88.67

Antiques ‘R’ Us is a mature manufacturing firm. The company just paid a dividend of $12.40, but management expects to reduce the payout by 5.25 percent per year, indefinitely.

Required:

If you require a return of 8 percent on this stock, what will you pay for a share today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Current share price	$

 
Explanation:

The constant growth model can be applied even if the dividends are declining by a constant percentage, just make sure to recognize the negative growth. So, the price of the stock today will be:

P0 = D0 (1 + g) / (R – g)

P0 = $12.40(1 – 0.0525) / [(.08 – (–.0525)]

P0 = $88.67