Final answer:
To calculate the stock price with zero dividend growth, use the dividend discount model. For a constant growth rate of 8%, use the formula P0 = D0 * (1 + g) / (r - g), where P0 is the current stock price, D0 is the dividend per share, g is the growth rate, and r is the required rate of return.
Step-by-step explanation:
To calculate the stock price when dividends are expected to have zero growth, you can use the formula for the dividend discount model (DDM), which is the present value of all future dividends. Since the dividends are expected to have zero growth, the formula simplifies to Dividend / (Required Rate of Return - Growth Rate). In this case, using the given information, the stock price would be P2.00 / (0.13 - 0) = P2.00 / 0.13 = P15.38. For the firm's current stock price with a constant growth rate of 8% annually, you can use the formula P0 = D0 * (1 + g) / (r - g), where P0 is the current stock price, D0 is the dividend per share, g is the growth rate, and r is the required rate of return. Plugging in the values, the current stock price would be P2.00 * (1 + 0.08) / (0.13 - 0.08) = P2.00 * 1.08 / 0.05 = P43.20.