Question

Schiller Corporation will pay a $2.78 per share dividend next year. The company pledges to increase its dividend by 4.5 percent per year, indefinitely. If you require a return of 15 percent on your investment, how much will you pay for the company’s stock today?

Answer 1

The Market price for the stock will be 26.48 according to the gordon dividend grow model.

Step-by-step explanation:

We will calculate the stock price, using the gordon model for the dividend grow model:

`(divends)/(return-growth) = Intrinsic \: Value`

D1 = 2.78

return = 15%

grow = 4.5%

`(2.78)/(0.15-0.045) = Intrinsic \: Value`

Stock market = 26,47619 = $26.48