Question

Dragon express inc. just paid a $1.57 dividend and investors expect that dividend to grow by 5% each year forever. if the required return on the stock investment is 14%, what should be the price of the stock today.

a. $11.21
b. $17.44
c. $25.37
d. $18.32

Answer 1

To solve this problem, we will use a valuation method named income valuation includes discounting of the profits the stock will carry to the stockholder in the probable future, and a final value on disposal.

Solution:

1.57 (1.05) / (.14 - .05)

= 18.32. the answer is letter d.