River City Recycling just paid its annual dividend of $1.15 per share.The required return is 12.3 percent and the dividend growth rate is 0.75 percent.What is the expected value of this stock five years from now?

Question

Quizplus · Accepted Answer

The expected value of the stock can be calculated using the Gordon Growth Model (Dividend Discount Model). The formula is P = D1 / (r - g), where D1 is the dividend next year, r is the required return, and g is the growth rate. First, calculate the dividend in year 5: D5 = $1.15 * (1 + 0.0075)^5. Then, calculate the price in year 5 using the formula: P5 = D6 / (r - g), where D6 = D5 * (1 + 0.0075).

River City Recycling Just Paid Its Annual Dividend of $1