Von Bora Corporation (VBC) is expected to pay a $2.00 dividend at the end of this year. If you expect VBC's dividend to grow by 5% per year forever and VBC's equity cost of capital is 13%, then the value of a share of VBC is closest to:

Question

Quizplus · Accepted Answer

To calculate the value of the share, we can use the dividend discount model:

Value of stock = Dividend / (Cost of Equity - Growth rate of Dividend)

Plugging in the numbers:

Value of stock = 2 / (0.13 - 0.05) = $25

Therefore, the closest answer choice is B) $25.00.

Von Bora Corporation (VBC) Is Expected to Pay a $2