Question

Wallboard​ Inc, plans to pay a dividend in one year ​(Div1​) of​ $0.80, the dividend growth rate​ (g) is expected to be​ 6%, and the required rate of return​ (r) for the​ firm's stock is​ 10%. What is the stock​ price, according to the constant growth dividend​ model?

Answer 1

$20.00

Step-by-step explanation:

Data provided in the question:

Dividend paid, D1 = $0.80

Expected growth rate, g = 6% = 0.06

Required rate of return = 10% = 0.10

Now,

The current price of the stock = D1 ÷ [ r - g ]

or

The current price of the stock = $0.80 ÷ [ 0.10 - 0.06 ]

or

The current price of the stock = $0.80 ÷ 0.04

or

The current price of the stock = $20.00