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MTB Industries currently pays an annual dividend of $1.50 per share, and it is expected that these dividend payments will continue indefinitely. If the firm's equity cost of capital is 12%, the value of a share of MTB stock is closest to:

Respuesta :

Answer:

The value of MTB stock is closest to $12.50

Explanation:

The value of MTB stock is calculated using the below formula for the present of an annuity in perpetuity=dividend/expected rate of return

The expected rate of return in this instance is the equity cost of capital

Value of MTB stock=$1.50/12%

Value of MTB stock=$12.5

A rational investor a price for a stock today that reflects the future cash flows payable by a way of dividends payments promised by such stock considering the investor's rate of return as done above

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