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%,

Question

3 years ago

15

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

1 answer:

SVETLANKA909090 [29] · Answer 1 · 2022-06-21T09:00:26+03:00

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