Waller Co. paid a $0.149 dividend per share in 2006, which grew to $0.32 in 2012. This growth is expected to continue. What is the value of the stock at the beginning of 2013 when the required return is 14.9 percent? (Round the growth rate, g, to 4 decimal places. Round your final answer to 2 decimal places.)

 

Future dividend= D₀ (1+g)ⁿ

D₀ is the current dividend

Dividend in 2012 = Dividend in 2006 (1+g)⁶

$ 0.32 = $ 0.149 (1+g)⁶

(1+g)⁶ = $ 0.32/0.149

(1+g)⁶ = 2.147651007

1+g = 2.147651007^1/6

1+g = 1.135866484

g = 0.135866484 or 13.5866484

g = 13.5866

Dividend at the end of 2013 is expected to be $ 0.32(1.135866) = $ 0.36348

Price at the beginning of 2013 therefore = $ 0.36348/(0.149-0.135866) = $ 27.6747

Price at the beginning of 2013 = $ 27.67