NanTech Corporation's next dividend is expected to be $1.75. Dividend growth has been a consistent 7% per year. If investors want a 12% return, determine the stock price 5 years ago.

Question

Quizplus · Accepted Answer

To find the stock price 5 years ago, we use the Gordon Growth Model: P = D / (r - g). First, calculate the current price: P0 = 1.75 / (0.12 - 0.07) = $35. Then, discount this price back 5 years: P5 = 35 / (1.07^5) = $24.95.

NanTech Corporation's Next Dividend Is Expected to Be $1