Castle,Inc.paid a dividend yesterday of $2 per share.Castle management expects the dividend to increase next year to $3 annually.If the dividend is expected to stay at $3 per year for the foreseeable future,what is the value of the stock to an investor with a required rate of return of 10%?

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Quizplus · Accepted Answer

The value of the stock can be calculated using the dividend discount model for a perpetuity since the dividend is expected to stay constant at $3 per year. The formula is $ \text{Value} = \frac{D}{r} $, where $D$ is the dividend and $r$ is the required rate of return. Plugging in the values, $ \text{Value} = \frac{3}{0.10} = 30 $. Therefore, the value of the stock is $30.00.