During the past 8 years, UTX Company common stock dividends have grown from $2.70 to $5.00 per share (currently). Determine the value of UTX common stock to an investor who requires a 16% rate of return, assuming that dividends continue growing for the foreseeable future at the same rate as over the past 8 years.

Question

Quizplus · Accepted Answer

Using the Gordon Growth Model, we can calculate the value of the stock as:
V = D / (k - g)
where V is the value of the stock, D is the current dividend, k is the required rate of return, and g is the growth rate of the dividend.
Plugging in the values, we get:
V = 5.00 / (0.16 - 0.087) = $67.50
Therefore, the best choice is C, $67.50.

During the Past 8 Years, UTX Company Common Stock Dividends