Spacefood Products will pay a dividend of $2.40 per share at the end of this year.It is expected that this dividend will grow by 3% per year each year in the future.What will be the current value of a single share of Spacefood's stock if the firm's equity cost of capital is 10%?

Question

Quizplus · Accepted Answer

The current value of a single share of Spacefood's stock can be calculated using the Gordon Growth Model (also known as the Dividend Discount Model for a perpetuity with growth). The formula is P = D / (r - g), where P is the price of the stock, D is the dividend at the end of the first year, r is the cost of equity, and g is the growth rate of the dividend. Plugging in the values given: P = $2.40 / (0.10 - 0.03) = $2.40 / 0.07 = $34.29.

Spacefood Products Will Pay a Dividend of $2