HCC, Inc., expects its dividends to grow at 25 percent per year for the next seven years before levelling off to a constant 3 percent growth rate. The required return is 11 percent. What is the current stock price if the annual dividend per share that was just paid was $1.05?

Question

Quizplus · Accepted Answer

The correct answer is A because the current stock price is $43.21. This is calculated using the Gordon Growth Model, which is:P0 = D1 / (r - g)where:P0 is the current stock priceD1 is the dividend per share that was just paidr is the required returng is the growth rateIn this case, D1 = $1.05, r = 11%, and g = 3%. Plugging these values into the formula, we get:P0 = $1.05 / (0.11 - 0.03) = $43.21

HCC, Inc, Expects Its Dividends to Grow at 25 Percent Per