Spacefood Products will pay a dividend of $2.40 per share this year. It is expected that thisdividend will grow by 3% per year each year in the future. What will be the current value of a single Spacefood share if the firm's equity cost of capital is 10%?

Question

Quizplus · Accepted Answer

The current value of a share can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetuity with growth), which is: Price = Dividend / (Cost of Equity - Growth Rate). Here, Price = $2.40 / (0.10 - 0.03) = $34.29.

Spacefood Products Will Pay a Dividend of $2