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Andreyy89
3 years ago
15

A share of Lash Inc.'s common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%,

and if investors' required rate of return is 11.4%, what is the stock price?a. $16.28b. $16.70c. $17.13d. $17.57e. $18.01
Business
1 answer:
SVETLANKA909090 [29]3 years ago
6 0

Answer:

D. $17.57

Explanation:

We can apply dividend discounted model (DDM) to value the stock of this company. DDM is stated as below:

Current stock price = Next year dividend/(Required rate of return - Dividend growth rate)

                                  = T[his year dividend x (1 + Dividend growth rate)]/(Required rate of return - Dividend growth rate)

                                  = [1.00 x (1 + 5.4%)]/(11.4% - 5.4%) = $17.57

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