Gourrier Sleepy Motels currently pays a $2.00 common stock dividend. Dividends have been growing at a 3% annual rate and are expected to continue growing at this rate for the next 4 years. Thereafter the growth rate is expected to be 0% for the foreseeable future. What is the current value of Gourrier common stock to an investor requiring a 12% rate of return?

Question

Quizplus · Accepted Answer

The correct answer is A because the current value of Gourrier common stock to an investor requiring a 12% rate of return is $18.44. This is calculated using the Gordon Growth Model, which takes into account the current dividend, the expected growth rate of dividends, and the required rate of return.

Gourrier Sleepy Motels Currently Pays a $2