Kinard's Kennels Inc.ROE is 20%.Their dividend payout ratio is 70%.The last dividend,just paid,was $2.00.If dividends are expected to grow by the company's internal growth rate indefinitely,what is the current value of Kinard's common stock if its required return is 18%?

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Quizplus · Accepted Answer

The correct answer is A because the current value of Kinard's common stock is $17.67. This is calculated using the Gordon Growth Model, which is:Current Stock Price = Last Dividend / (Required Return - Dividend Growth Rate)In this case, the last dividend is $2.00, the required return is 18%, and the dividend growth rate is 20% * (1 - 70%) = 6%. Plugging these values into the formula, we get:Current Stock Price = $2.00 / (0.18 - 0.06) = $17.67