Campbell Soup Co. paid a $1.55 dividend per share in 2004, which grew to $1.95 in 2009. This growth is expected to continue. What is the value of this stock at the beginning of 2010 when the required return is 10.5 percent?
A)$35.20
B)$34.16
C)$33.48
D)$32.17

Question

Quizplus · Accepted Answer

The correct answer is A. The value of the stock at the beginning of 2010 is $35.20. This is calculated using the dividend discount model, which takes into account the expected growth rate of the dividend and the required return. The formula for the dividend discount model is:```Stock Price = Dividend / (Required Return - Expected Growth Rate)```In this case, the dividend is $1.95, the required return is 10.5%, and the expected growth rate is 5%. Plugging these values into the formula, we get:```Stock Price = $1.95 / (0.105 - 0.05) = $35.20```