Target Corp. (TGT) paid a $0.21 dividend per share in 2010, which grew to $0.52 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required rate of return is 14.77 percent?
A) $3.52
B) $55.32
C) $62.97
D) $63.49

Question

Quizplus · Accepted Answer

To find the value of the stock, use the Gordon Growth Model (Dividend Discount Model): P = D1 / (r - g). First, calculate the growth rate (g) using the dividend growth from 2010 to 2017: g = (0.52/0.21)^(1/7) - 1. Then, calculate the expected dividend in 2017 (D1), which is $0.52. Finally, plug these values into the formula with the required rate of return (r = 0.1477) to find the stock price.