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Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 5% per year. If D0 = $4 and rs = 13%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent.

Respuesta :

Answer:

$21.11

Explanation:

Given that,

Current dividend, D0 = $4

Rate of return, rs = 13%

[tex]P_{0}=\frac{D_{0}\times(1+g) }{rs-g) }[/tex]

Here,

Current price of the stock = [tex]P_{0}[/tex]

Growth rate, g = 5%

[tex]P_{0}=\frac{4\times(1+(-0.05)) }{0.13-(-0.05)) }[/tex]

[tex]P_{0}=\frac{3.8}{0.18}[/tex]

               = $21.11

Therefore, the value of stock is $21.11

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