Question

Symon's Suppers Co. has announced that it will pay a dividend of $4.15 per share one year from today. Additionally, the company expects to increase its dividend by 4 percent annually. The required return on the company's stock is 10.2 percent. What is the current share price?

Answer 1

Using the Gordon Growth Model with a future dividend of $4.15, required return of 10.2%, and a growth rate of 4%, the current share price of Symon's Suppers Co. is calculated to be $66.94.

Step-by-step explanation:

To calculate the current share price for Symon's Suppers Co., we can use the Gordon Growth Model (Dividend Discount Model), which is given by the formula:

Price = D1 / (r - g)

Where:

• D1 is the dividend next year, which is $4.15.
• r is the required return on the stock, which is 10.2%.
• g is the dividend growth rate, which is 4%.

The current share price is calculated as follows:

Price = $4.15 / (0.102 - 0.04) = $4.15 / 0.062 = $66.94

Therefore, the current share price using the Gordon Growth Model would be $66.94.