Question

Determine the value of a stock with the following variables using the constant growth model: Current annual dividend: $0.85 per share Required return rate: 7% Constant growth rate: 4%

Answer 1

Answer:

$29.47

Explanation:

Current Dividend, D0 = $0.85

Required Return, r = 7.00%

Growth Rate, = 4.00%

Expected Dividend, D1 = D0 * (1 + g)

Expected Dividend, D1 = $0.85 * 1.04

Expected Dividend, D1 = $0.884

Value of Stock = D1 / (r - g)

Value of Stock = $0.884 / (0.07 - 0.04)

Value of Stock = $0.884 / 0.03

Value of Stock = $29.47