Lee Hong Imports paid a €1.00 per share annual dividend last week.Dividends are expected to increase by 5% annually.What is one share worth to you today if the appropriate discount rate is 14%?

Question

Quizplus · Accepted Answer

Using the dividend discount model, we can calculate the current stock price as follows: 
D1 = €1.05 (5% increase in dividend) 
r = 14% 
P0 = D1/(r-g) = €1.05/(0.14-0.05) = €11.67 
Therefore, one share is worth €11.67 today.

Lee Hong Imports Paid a €1