P.Noel Company's ordinary shares have just paid a $2.00 dividend.If investors believe that the expected rate of return on P.Noel is 14% and that dividends will grow at the rate of 5% per year for the foreseeable future, what is the value of P.Noel shares?

Question

Quizplus · Accepted Answer

Using the dividend discount model, the value of the P.Noel shares can be calculated as follows:
Value = [Dividend/(Discount rate - Growth rate)]
Value = [$2.00/(0.14 - 0.05)]
Value = $23.33
Therefore, the value of P.Noel shares is $23.33. The closest choice to this value is (C) $23.33, so it is the best choice.

PNoel Company's Ordinary Shares Have Just Paid a $2