The Diamond Outlet has current earnings per share of $2.20 and an expected earnings growth rate of 2.3 percent. The required return on the stock is 14 percent and the current book value per share is $15.25. What is the current market value of this stock?

Question

Quizplus · Accepted Answer

Using the constant growth model: 
current market value = (earnings per share / (required return - expected growth rate)) + book value per share
= ($2.20 / (0.14 - 0.023)) + $15.25
= $16.24
Therefore, the current market value of the stock is $16.24. Option D is the correct answer.

The Diamond Outlet Has Current Earnings Per Share of $2