question archive You expect Coles has earnings per share of $6 this year and expect that they will pay out 50% of these earnings to shareholders in the form of a dividend today
You expect Coles has earnings per share of $6 this year and expect that they will pay out 50% of these earnings to shareholders in the form of a dividend today
Subject:FinancePrice:4.01 Bought7
You expect Coles has earnings per share of $6 this year and expect that they will pay out 50% of these earnings to shareholders in the form of a dividend today. Coles's return on new investments is 15% and growth rate is 7%. The value of a share of Coles is closest to:
Select one:
a. $20.06
b. $75
c. $40.12
d. $37.5
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Computation of the value of share:-
Dividend = $6 * 50%
= $3
Value of share = D1 / (Required return - Growth rate)
= $3 * (1 + 7%) / (15% - 7%)
= $3.21 / 8%
= $40.13
Correct option is c). $40.12 ; It is closet to $40.13
