Final answer:
The stock price of Seitz Glassware, with a 1% annual dividend growth rate and a 10% target return rate, would be approximately $2.81 per share according to the Gordon Growth Model.
Step-by-step explanation:
To calculate the price of Seitz Glassware's stock with a dividend growth rate of 1%, we can use the Gordon Growth Model (also known as the Dividend Discount Model). This model calculates the present value of an infinite series of future dividends that are expected to increase at a constant rate. The formula for the Gordon Growth Model is P = D1 / (k - g), where P is the price of the stock, D1 is the expected dividend in the next period, k is the required rate of return (also known as the discount rate), and g is the growth rate in dividends.
Given that the most recent dividend (Div0) was $0.25 per share, the dividend growth rate (g) is 1%, and the target return rate (k) is 10%, the expected dividend in the next period (D1) can be calculated as Div0 × (1 + g), which gives us $0.25 × (1 + 0.01) = $0.2525. Plugging these values into the formula gives us P = $0.2525 / (0.10 - 0.01) = $2.8056 (rounded to four decimal places).
Therefore, the stock price of Seitz Glassware, considering a 1% annual growth rate in dividends and a 10% required rate of return, would be approximately $2.81 per share.