Wallboard Inc,plans to pay a dividend in one year (Div₁)of $0.80,the dividend growth rate (g)is expected to be 6%,and the required rate of return (r)for the firm's stock is 10%.What is the stock price,according to the constant growth dividend model?

Question

Quizplus · Accepted Answer

According to the constant growth dividend model, the stock price (P) can be calculated using the formula:

P = DivS1 / (r - g)

Where DivS1 is the expected dividend in the next period, r is the required rate of return, and g is the expected growth rate.

Substituting the given values, we get:

P = 0.80 / (0.10 - 0.06)
P = 0.80 / 0.04
P = 20.00

Therefore, the stock price according to the constant growth dividend model is $20.00. The correct answer is C.

Wallboard Inc,plans to Pay a Dividend in One Year (Div1)of

Wallboard Inc,plans to Pay a Dividend in One Year (Div₁)of