Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a dividend growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.)
A) $74
B) $32
C) $80
D) $60

Question

Quizplus · Accepted Answer

To calculate the current price of the stock, we can use the dividend discount model:

Current Price = Dividend / (Discount Rate - Dividend Growth Rate)

Plugging in the given values, we get:

Current Price = 4.45 / (0.14 - 0.08) = $80.

Therefore, the best choice is C.

Johnson Corporation Has Just Paid a Dividend of $4