What is the value of a share of Henley Inc. to an investor who requires a 12 percent rate of return if Henley's last dividend was $1.20? Assume earnings and dividends are expected to grow indefinitely at a rate of 7% per year.

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Quizplus · Accepted Answer

The value of a share can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetually growing dividend), which is P = D0*(1+g) / (r-g), where P is the price, D0 is the last dividend, g is the growth rate, and r is the required rate of return. Substituting the given values: P = $1.20*(1+0.07) / (0.12-0.07) = $1.20*1.07 / 0.05 = $25.68.

What Is the Value of a Share of Henley Inc