Corrs Company stock just paid an annual dividend of $1.35 per share. The company announced dividends are expected to grow at 1.35 percent per year indefinitely. If the required return is 10 percent, what is the stock price?

Question

Quizplus · Accepted Answer

We can use the constant growth dividend discount model to solve this problem.
First, we need to calculate the expected dividend next year:
Expected dividend = $1.35 x 1.0135 = $1.367725
Next, we can use the formula to calculate the stock price:
Stock price = Expected dividend / (Required return - Dividend growth rate)
Stock price = $1.367725 / (0.10 - 0.0135) = $21.5375
Rounding to the nearest cent, the stock price is $21.54, which is answer choice C.

Corrs Company Stock Just Paid an Annual Dividend of $1