Question

Assume that shareholder's required rate of return (r) is 9%. Dr. Pepper is expected to pay a dividend of $2.00 per share (D1) next year. Moreover, investors expect dividends to grow at a constant rate of 4% per year (g). According to the Dividend Discount Model, what should be the current price per share of Dr. Pepper?

Answer 1

Answer:

P=$40

Explanation:

We will apply constant dividend growth model that is =P = D1 / ( k-g )

P is the price of share  ?

D1 is the current divided  $2

k is the rate of return       9%

G is the constant growth  4%

P=2/(9%-4%)

P=$40