Nofal Corporation will pay a $3.90 per share dividend next year. The company pledges to increase its dividend by 5 percent per year, indefinitely. Required: If you require a return of 8 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current stock price $ Explanation: Using the constant growth model, we find the price of the stock today is: P0 = D1 / (R – g) P0 = $3.90 / (.08 – .0500) P0 = $130.00

Nofal Corporation will pay a $3.90 per share dividend next year. The company pledges to increase its dividend by 5 percent per year, indefinitely.

Required:

If you require a return of 8 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Current stock price

$

 
Explanation:

Using the constant growth model, we find the price of the stock today is:

P0 = D1 / (R – g)

P0 = $3.90 / (.08 – .0500)

P0 = $130.00