Microhard currently pays no dividends. The company has current earnings per share of $2.80 and an expected earnings growth rate of 4.5 percent per year. The current book value per share is $12.95. If the required return is 11 percent what is the price of the stock today?

Question

Quizplus · Accepted Answer

The price of the stock can be calculated using the Gordon Growth Model (Dividend Discount Model for a stock with no dividends), which is P = E * (1 + g) / (r - g), where E is earnings per share, g is growth rate, and r is required return. Plugging in the values: P = $2.80 * (1 + 0.045) / (0.11 - 0.045) = $36.05.

Microhard Currently Pays No Dividends