Blanton Consulting Inc.just paid a $2.00 per share dividend.The firm also announced that it anticipates a long-run growth in dividends of 3% per year.Inflation is also expected to be 3% per year,and the firms required rate of return on common stock is 11%.What is the current price per share of the firm's stock?
A)$14.71
B)$14.29
C)$25.75
D)$25.00

Question

Quizplus · Accepted Answer

The current price per share can be calculated using the Gordon Growth Model (Dividend Discount Model): P = D1 / (r - g), where D1 is the dividend next year ($2.00 * 1.03 = $2.06), r is the required rate of return (11%), and g is the growth rate (3%). So, P = $2.06 / (0.11 - 0.03) = $25.75.