The In-Tech Co. just paid a dividend of $1 per share. Analysts expect its dividend to grow at 25 percent per year for the next three years and then 5 percent per year thereafter. If the required rate of return on the stock is 18 percent, what is the current value of the stock?
A)$12.97
B)$11.93
C)$15.20
D)$15.78

Question

Quizplus · Accepted Answer

The correct answer is A because the current value of the stock is $12.97. This is calculated using the dividend discount model, which takes into account the expected future dividends and the required rate of return.