Target Corp. (TGT) paid a $0.21 dividend per share in 2000, which grew to $0.52 in 2017. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required rate of return is 14.77 percent?

Question

Quizplus · Accepted Answer

To calculate the value of the stock at the beginning of 2017, we can use the dividend discount model as follows:

Value of stock = D1 / (r - g)

where:
D1 = dividend at the end of 2017 = $0.52
r = required rate of return = 14.77%
g = expected growth rate of dividends = (0.52-0.21)/0.21 = 1.4762 or 47.62%

Plugging in the values, we get:

Value of stock = 0.52 / (0.1477 - 0.4762) = 62.97

Therefore, the value of this stock at the beginning of 2017 is $62.97. Answer choice C is the only option that matches this value.