Gadgets Inc.just paid a dividend of $1.55.It expects its earnings and dividends to decline at a rate of 3 percent per year indefinitely.What is the value of the stock today if the required return is 12.5 percent?

Name: Gadgets Inc.just paid a dividend of $1.55.It expects its earnings and dividends to decline at a rate of 3 percent per year indefinitely.What is the value of the stock today if the required return is 12.5 percent?
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Quizplus · Accepted Answer

P₀ = [$1.55*(1-3%)]/(12.5%+3%)= $9.70