Question

Company XC is going to next dividend (Div1) of $2.00. The growth rate (g) of dividends is 2% and the required rate of return (r) is 10%. What is the stock price today?

Answer 1

Answer:

$25

Explanation:

The answer can be found using the Gordon constant growth dividend model

Stock price = next dividend / required rate of return - growth rate

Stock price = D1 / r - g

$2 / 10% - 2%

$2 / 0.08 = $25