Question

BlackHawk anticipates paying a dividend of $4.25 next year and is expected to grow the dividend at a constant rate of 7% per year, indefinitely. If the required rate of return by shares holders is 13%, then, according to the Gordon Model, what should the price of the stock be today

Answer 1

Answer:

$70.83

Explanation:

The Gordon Growth model (or the dividend discount model) provides a simple formula for calculating the intrinsic price of stocks:

price of stocks = dividend / (required rate of return - growth rate)

price of stocks = $4.25 / (13% - 7%) = $4.25 / 6% = $70.83