Question

Harry Corporation's common stock currently sells for $179.85 per share. Harry paid a dividend of $10.18 yesterday, and dividends are expected to grow at a constant rate of 6 percent forever. If the required rate of return is 12 percent, what will Harry Corporation's stock sell for one year from now, immediately after it pays its next dividend

Answer 1

Answer:

$190.64

Explanation:

In this question, we apply the Gordon model which is shown below:

= Next year dividend ÷ (Required rate of return - growth rate)

where,

Current year dividend

For one year

= $10.18 + $10.18 × 6%

= $10.18 + 0.6108

= $10.7908

For next year

= $10.7908 + $10.7908 × 6%

=  $10.7908 + 0.647448

= 11.438248

The other items rate would remain same

Now put these values to the above formula  

So, the value would equal to

=  11.438248 ÷ (12% - 6%)

= $190.64