Kilsheimer Company just paid a dividend of $5 per share.Future dividends are expected to grow at a constant rate of 7% per year.What is the value of the stock if the required return is 16%?

Question

Quizplus · Accepted Answer

To calculate the value of the stock, we can use the Gordon growth model: P = D/(r-g), where P is the price of the stock, D is the most recent dividend, r is the required return, and g is the growth rate of dividends. Plugging in the given values, we get:
P = 5/(0.16-0.07) = $59.44
Therefore, the correct answer is C.

Kilsheimer Company Just Paid a Dividend of $5 Per Share