Question

Boehm Incorporated is expected to pay a $2.20 per share dividend at the end of this year (i.e., D1 = $2.20). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 13%. What is the estimated value per share of Boehm's stock? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

stock price $22

Step-by-step explanation:

We use the dividend grow model to evaluate the stock

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

D1 = 2.20

grow = g = 3% = 3/100 = 0.03

return = 13% = 13/100 = 0.13

we calculate:

`(2.20)/(0.13-0.03) = Intrinsic \: Value`

value of the stock 2.2/0.1 = 22