Kandle stock just paid a dividend of $4.76 per share and plans to pay a dividend of $5 per share next year, which is expected to increase by 3 percent per year subsequently. The required rate of return is 15 percent. The value of Kandle stock, according to the dividend discount model, is $____.

Question

Quizplus · Accepted Answer

The value of the stock using the Gordon Growth Model (Dividend Discount Model) is calculated as: P = D1 / (r - g), where D1 is the dividend next year ($5), r is the required rate of return (0.15), and g is the growth rate (0.03). So, P = 5 / (0.15 - 0.03) = 41.67.

Kandle Stock Just Paid a Dividend of $4