Von Bora Corporation (VBC)is expected to pay a $3.00 dividend at the end of this year. If you expect VBC's dividend to grow by 6% per year forever and VBC's equity cost of capital to be 13%, then the value of a share of VBS stock is closest to ________.

Question

Quizplus · Accepted Answer

The value of a stock with constant growth can be calculated using the Gordon Growth Model: P = D / (r - g), where P is the price, D is the dividend, r is the required rate of return, and g is the growth rate. Here, P = $3 / (0.13 - 0.06) = $42.86.

Von Bora Corporation (VBC)is Expected to Pay a $3