Final answer:
To calculate the stock's value given a next expected dividend of $0.60, with 3.0 percent dividend growth rate and 10 percent required rate of return, the Gordon Growth Model is used. The formula results in a stock value of $8.57.
Step-by-step explanation:
The question asks to determine the value of a stock given the following parameters: next expected dividend is $0.60, the constant dividend growth rate is 3.0 percent, and the required rate of return on the stock is 10 percent. To calculate this, we use the Gordon Growth Model (also known as the Dividend Discount Model), which calculates the present value of all expected future dividends, growing at a constant rate, and discounted back to their present value at the required rate of return.
The formula for the Gordon Growth Model is:
Stock Value = D1 / (r - g)
where D1 is the next expected dividend, r is the required rate of return, and g is the growth rate of dividends. Substituting our values in, we get:
Stock Value = $0.60 / (0.10 - 0.03)
Stock Value = $0.60 / 0.07
Stock Value = $8.57
Therefore, the value of the stock is $8.57.