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Marmara MIS Company has an expected growth rate at 0%. Each share of stock just received an annual 5 TL dividend per share. If the required return on the stock is 15%, what is the value of the common stock?

Marmara MIS Company has an expected growth rate at 0%. Each share of stock just received an annual 5 TL dividend per share. If the required return on the stock is 15%, what is the value of the common stock?

Solutions

Expert Solution

As per the Gordon Growth Model:

 

where, Po = Value of stock today

Do = Current annual dividend per share =

r = Required annual rate of return

g = Annual dividend growth rate

 

In the given question we are given the following,

Growth rate (g) = 0%

Current annual dividend per share (Do) = 5 TL

Required rate of return (r) = 15%

Value of stock today (Po) = ?

 

So,

P0 = 33.33 TL

Nabeel answered 1 year ago
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