Problem:
An oil company's resources are being depleted and known reserves are becoming scarcer. As a result, the company's earnings and dividends are declining at a rate of 3% each year. The dividend was $5.60 per share during the current year (period 0). In other words, D0 is $5.60. The appropriate discount rate is 11% per year.
Required:
Question: What is the price per share of the company's common stock, i.e., P0?
- $38.80
- $40.00
- $67.90
- $70.00
Note: Please show how to work it out.