Bundaberg Brewed Drinks Corporation has just announced a dividend of $0.80 for this year and $0.835 for the next year.Dividends are expected to grow at a constant rate indefinitely.What is the current stock price if the required return is 13.1 percent?

Question

Quizplus · Accepted Answer

The current stock price can be calculated using the Gordon Growth Model (Dividend Discount Model). The formula is P = D1 / (r - g), where D1 is the dividend for the next year, r is the required return, and g is the growth rate. First, calculate the growth rate: g = ($0.835 - $0.80) / $0.80 = 0.04375 or 4.375%. Then, use the formula: P = $0.835 / (0.131 - 0.04375) = $9.57.

Bundaberg Brewed Drinks Corporation Has Just Announced a Dividend of $0.80