Financial analysts forecast ABC Inc. growth for the future to be 12 percent. ABC's recent dividend was $1.60. What is the value of ABC stock when the required return is 15 percent?
A) $59.73
B) $63.72
C) $79.81
D) $91.02

Question

Quizplus · Accepted Answer

The value of the stock can be calculated using the Gordon Growth Model (Dividend Discount Model): P = D1 / (r - g), where D1 is the expected dividend next year, r is the required return, and g is the growth rate. D1 = $1.60 * (1 + 0.12) = $1.792. P = $1.792 / (0.15 - 0.12) = $59.73.

Financial Analysts Forecast ABC Inc