You forecast a constant dividend growth rate of 8% and D0 = $4. You require a rate of return of 12% and the current market price is $120.

Name: You forecast a constant dividend growth rate of 8% and D0 = $4. You require a rate of return of 12% and the current market price is $120.
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Question

Quizplus · Accepted Answer

The NPV of the stock is -$12 because the intrinsic value calculated using the Gordon Growth Model (D1/(r-g)) is $108, which is less than the current market price of $120, resulting in a negative NPV of -$12.

You Forecast a Constant Dividend Growth Rate of 8% and D0