Header Motor, Inc., paid a $3.91 dividend last year. At a constant growth rate of 7 percent, what is the value of the common stock if the investors require a 16 percent rate of return? The value of the common stock is $ nothing. (Round to the nearest cent.)

The value of the stock is $43.44

Explanation:

The value of common stock can be computed using the below formula:

Price of share=dividend/(rate of return-growth rate)

dividend =$3.91

rate of return is 16%

growth rate is 7%

Price of the share=$3.91/(16%-7%)

                            =$43.44

The value of this common stock today is $43.44

Investors usually value investment in shares by making reference to the dividend capacity of the investment.In other words, the dividends payable in the future discounted to today;s terms is the equivalent value of the share today.

answer; ///(c) i believe its it ignores cash flows following the payback period;

a loan? that’s my guess, anywho.