A firm has experienced a constant annual rate of dividend growth of 9 percent on its common stock and expects the dividend per share in the coming year to be $2.70.The required return on the firm's stock is 12 percent.The value of the firm's common stock is ________.

Question

Quizplus · Accepted Answer

The dividend growth model can be used to determine the value of the firm's common stock as follows:

Stock Value = Dividend per share / (Required return - Dividend growth rate)

Using the information given, we can plug in the values:

Stock Value = $2.70 / (0.12 - 0.09) = $90

Therefore, the value of the firm's common stock is $90 per share.

A Firm Has Experienced a Constant Annual Rate of Dividend