Casino Inc. expects to pay a dividend of $3 per share at the end of year 1 (Div₁)and these dividends are expected to grow at a constant rate of 6 percent per year forever. If the required rate of return on the stock is 18 percent, what is the current value of the stock today?

Question

Quizplus · Accepted Answer

The correct answer is A because the current value of the stock is $25. This can be calculated using the formula:```Current Value = Dividend / (Required Rate of Return - Dividend Growth Rate)```In this case, the dividend is $3, the required rate of return is 18%, and the dividend growth rate is 6%. Plugging these values into the formula, we get:```Current Value = 3 / (0.18 - 0.06) = $25```