In: Economics
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, rs, is 18%. What is the estimated value per share of Boehm's stock? Round your answer to the nearest cent.
$
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