The stock of Takone, Inc. currently sells for $15.00 per share. The company just paid a dividend of $2.10 per share and the current market price per share (i. e., $15.00) is based on investor belief that the dividends of the company will remain constant forever. Unknown to the market, however, is that Takone is about to announce the introduction of a modified product line that will cause the future earnings and therefore dividends of the company to grow at a rate of 4 percent per year forever, starting today. This new growth rate will begin with the dividend to be paid one year from today. The modified product line will not in any way impact the required rate of return for the stock of Takone, Incorporated. Assuming that the market reacts rationally, what will be the new stock price of Takone, Incorporated after the announcement?
a. $21.00.
b. $15.00.
c. $21.84.
d. $15.76.
Answers: 2
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The stock of Takone, Inc. currently sells for $15.00 per share. The company just paid a dividend of...
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