The stock of MTY Golf World currently sells for $133.75 per share. The firm has a constant dividend growth rate of 7% and just paid a dividend of $6.21. If the required rate of return is 12%, what will the stock sell for one year from now?

Question

Quizplus · Accepted Answer

The stock price one year from now can be calculated using the dividend discount model for a stock with constant growth: $ P_1 = \frac{D_0 \times (1 + g)}{r - g} $, where $P_1$ is the price one year from now, $D_0$ is the most recent dividend, $g$ is the growth rate, and $r$ is the required rate of return. Plugging in the given values: $ P_1 = \frac{6.21 \times (1 + 0.07)}{0.12 - 0.07} = 142.20 $.

The Stock of MTY Golf World Currently Sells for $133