Vansel Inc. retains most of its earnings. The company currently has earnings per share of $11. Vansel expects its earnings to grow at a constant rate of 2 percent per year. Furthermore, the average PE ratio of all other firms in Vansel's industry is 12. Vansel is expected to pay dividends per share of $3.50 during each of the next three years. If investors require a 10 percent rate of return on Vansel stock, a fair price for Vansel stock today is $____.

Question

Quizplus · Accepted Answer

The correct answer is A because the fair price for Vansel stock today is $113.95. This is calculated using the Gordon Growth Model, which takes into account the company's earnings per share, expected growth rate, dividend per share, and required rate of return.