A company's dividend last year was $3.00. Dividends are expected to grow indefinitely at 7 percent, and the required rate of return for the stock is 13 percent. What is the value of the stock today?

Question

Quizplus · Accepted Answer

The value of the stock today can be calculated using the Gordon Growth Model (Dividend Discount Model): P = D1 / (r - g), where D1 is the dividend next year, r is the required rate of return, and g is the growth rate. D1 = $3.00 * (1 + 0.07) = $3.21. P = $3.21 / (0.13 - 0.07) = $53.50.

A Company's Dividend Last Year Was $3