Endeavour Enterprises is expected to pay a dividend of $1.22 at the end of the current year and analysts predict that dividends are expected to grow at a constant rate of 9% p.a.after that.If Endeavour Enterprises' shareholders require a return of 8% p.a.on equity capital provided to the firm what will be its current share price?

Question

Quizplus · Accepted Answer

The constant dividend growth model (Gordon Growth Model) cannot be used when the required rate of return is less than the growth rate, as it would result in a negative or undefined price.

Endeavour Enterprises Is Expected to Pay a Dividend of $1