Campbell Soup Co. paid a $1.55 dividend per share in 2012, which grew to $1.95 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required return is 10.5 percent?
A) $35.20
B) $34.16
C) $33.48
D) $32.17

Question

Quizplus · Accepted Answer

The correct answer is A. The value of the stock at the beginning of 2017 is $35.20. This is calculated using the dividend discount model, which takes into account the expected future dividends and the required return. The formula for the dividend discount model is:```Stock Price = D1 / (r - g)```Where:* D1 is the expected dividend in the next period* r is the required return* g is the expected growth rate of dividendsIn this case, the expected dividend in the next period is $1.95, the required return is 10.5%, and the expected growth rate of dividends is 5%. Plugging these values into the formula, we get:```Stock Price = $1.95 / (0.105 - 0.05) = $35.20```