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A firm just paid a dividend of $4.20. The dividend is expectedto grow at a...

A firm just paid a dividend of $4.20. The dividend is expected to grow at a constant rate of 4.06% forever and the required rate of return is 10.76%. What is the value of the stock?



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Expert Solution

The question can be solved using dividend discount model.

Value of the stock today=D1/(r-g)

where:

D1=next dividend payment

r=interest rate

g=firm’s expected growth rate

Value of stock today= $4.20*(1 + 0.0406) /(0.1076 - 0.0406)

                                = $4.3705/ 0.0670

= $65.23.

jeff jeffy answered 2 years ago
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