Question

Constant Growth Valuation

Boehm Incorporated is expected to pay a $2.50 per share dividend at the end of this year (i.e., D₁ = $2.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, r_s, is 18%. What is the estimated value per share of Boehm's stock? Round your answer to the nearest cent.

$

Answer 1

Estimated value per share of Boehm's stock = D1 / (rs - gr)

                                                                       = $2.50 / (0.18 - 0.07)

                                                                       = $22.72

Thus, the estimated value per share of Boehm's stock is $22.72