A firm has an expected dividend next year of $1.20 per share, a zero growth rate of dividends, and a required return of 10 percent. The value of a share of the firm's common stock is

Question

Quizplus · Accepted Answer

According to the zero growth model, the value of the stock equals the dividend divided by the required return. Here, the expected dividend is $1.20 and the required return is 10%, thus the value of the stock is:
Value of stock = Dividend / Required Return
Value of stock = $1.20 / 0.10
Value of stock = $12

A Firm Has an Expected Dividend Next Year of $1