Harry Corporation's common stock currently sells for $179.85 per share.Harry paid a dividend of $10.18 yesterday,and dividends are expected to grow at a constant rate of 6 percent forever.If the required rate of return is 12 percent,what will Harry Corporation's stock sell for one year from now,immediately after it pays its next dividend?

Question

Quizplus · Accepted Answer

The stock price one year from now can be calculated using the Gordon Growth Model: P1 = D1 / (r - g), where D1 is the dividend next year ($10.18 * 1.06), r is the required rate of return (12%), and g is the growth rate (6%). This gives P1 = $190.64.

Harry Corporation's Common Stock Currently Sells for $179