Spacefood Products will pay a dividend of $2.40 per share this year.It is expected that this dividend will grow by 3% per year each year in the future.What will be the current value of a single share of Spacefood's stock if the firm's equity cost of capital is 10%?

Question

Quizplus · Accepted Answer

The current value of the stock can be calculated using the Gordon Growth Model (Dividend Discount 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. Plugging in the values: P = $2.40 / (0.10 - 0.03) = $34.29.

Spacefood Products Will Pay a Dividend of $2