Holtzman Clothiers's stock currently sells for $16.00 a share. It just paid a dividend of $2.25 a share (i.e., D0 = $2.25). The dividend is expected to grow at a constant rate of 5% a year.What stock price is expected 1 year from now? Round your answer to the nearest cent

Answered: Holtzman Clothiers's stock currently…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Holtzman Clothiers's stock currently sells for $16.00 a share. It just paid a dividend of $2.25 a share (i.e., D₀ = $2.25). The dividend is expected to grow at a constant rate of 5% a year.

What stock price is expected 1 year from now? Round your answer to the nearest cent

Expert Solution

Step 1

The board of directors of a firm determines the amount of dividend which are required to be distributed to the shareholders, which requires shareholder approval.

Out of the profit earned by the business organizations, some of the profit is distributed to the shareholders as return in the form of dividend and the remaining profit is retained by the entities for further growth and expansions.