Lily Co.paid a dividend of $5.25 on its common stock yesterday.The company's dividends are expected to grow at a constant rate of 8.5% indefinitely.If the required rate of return on this stock is 15.5%,compute the current value per share of Lily Co.stock.

Question

Quizplus · Accepted Answer

The current value per share can be calculated using the Gordon Growth Model: P = D1 / (r - g), where D1 is the dividend next year ($5.25 * 1.085), r is the required rate of return (15.5%), and g is the growth rate (8.5%). This gives P = $5.69125 / 0.07 = $81.30, closest to $81.38.

Lily CoPaid a Dividend of $5