Spooner Corporation's next dividend is expected to be $6. Dividend growth is estimated at 25%, 20%, 10% and then stabilize to 3%. If the rate of return is 10%, determine the stock price today.

Question

Quizplus · Accepted Answer

The correct answer is A because the stock price today is $124.67. This is calculated using the Gordon Growth Model, which is:Stock Price = Dividend / (Rate of Return - Dividend Growth Rate)In this case, the dividend is $6, the rate of return is 10%, and the dividend growth rate is 25%, 20%, 10%, and then stabilizes to 3%. Plugging these values into the formula, we get:Stock Price = $6 / (0.10 - 0.03) = $124.67

Spooner Corporation's Next Dividend Is Expected to Be $6