Shield Security pays annual dividends and has just paid this year's dividend of $1.20.If its equity cost of capital is 10%,and dividends are expected to grow by 5% per year in the future,what is the value of Shield's stock?

Question

Quizplus · Accepted Answer

The value of a stock can be calculated using the Gordon Growth Model, which is:
Stock Value = Dividend / (Cost of Equity - Growth Rate)
Plugging in the given values, we get:
Stock Value = 1.20 / (0.10 - 0.05) = $25.20
Therefore, the best choice is B.

Shield Security Pays Annual Dividends and Has Just Paid This