Question

Schiller Corporation will pay a $2.78 per share dividend next year. The company pledges to increase its dividend by 4.5 percent per year, indefinitely. If you require a return of 15 percent on your investment, how much will you pay for the company’s stock today?

Answer 1

Answer:

The Market price for the stock will be 26.48 according to the gordon dividend grow model.

Explanation:

We will calculate the stock price, using the gordon model for the dividend grow model:

$\frac{divends}{return-growth} = Intrinsic \: Value$

D1 = 2.78

return = 15%

grow =    4.5%

$\frac{2.78}{0.15-0.045} = Intrinsic \: Value$

Stock market = 26,47619 = $26.48