Question

2 annual dividend on its common stock. The dividend is expected to increase at 6% per year indefinitely. If the required rate of return is 16%, what is the stock's value?

Answer 1

Solution:

Given,

R= 16%

g= 8%

Calculate stock value ,

$D_{1}$=$D_{0}$ x (1+g) ;

D1= 2.16

P0= ( 2.16/0.16 )-0.08

P0= $27

A value stock is a lower price protection exchange that can otherwise be implied by the performance of the company.