Great Lakes Steel Supply is losing significant market share and thus its managers have decided to decrease the firm's annual dividend.The last annual dividend was $.1.30 per share but all future dividends will be decreased by 2.75 percent annually.What is a share of this stock worth today at a required return of 15.5 percent?

Question

Quizplus · Accepted Answer

The stock price can be calculated using the Gordon Growth Model (Dividend Discount Model for a declining dividend), which is P = D1 / (r - g). Here, D1 = $1.30 * (1 - 0.0275), r = 0.155, and g = -0.0275. Plugging in these values gives the stock price as approximately $6.93.

Great Lakes Steel Supply Is Losing Significant Market Share and Thus