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cluponka [151]
3 years ago
7

Determine the value of a stock with the following variables using the constant growth model: Current annual dividend: $0.85 per

share Required return rate: 7% Constant growth rate: 4%
Business
1 answer:
tigry1 [53]3 years ago
3 0

Answer:

$29.47

Explanation:

Current Dividend, D0 = $0.85

Required Return, r = 7.00%

Growth Rate, = 4.00%

Expected Dividend, D1 = D0 * (1 + g)

Expected Dividend, D1 = $0.85 * 1.04

Expected Dividend, D1 = $0.884

Value of Stock = D1 / (r - g)

Value of Stock = $0.884 / (0.07 - 0.04)

Value of Stock = $0.884 / 0.03

Value of Stock = $29.47

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