Question

Mariota Corporation just paid a dividend of $3.55 per share on its stock. The dividend growth rate is expected to be 3.95 forever and investors require a return of 12.1 percent on this stock. What will the stock price be in 13 years?

Multiple Choice
a. $72.08
b. $16.97
c. $74.92
d. $50.46
e. $66.84

Answer 1

To determine the stock price in 13 years, use the Gordon Growth Model with the given values.

Step-by-step explanation:

To determine the stock price in 13 years, we can use the Gordon Growth Model. The formula for calculating the stock price is:

Stock Price = Dividend / (Required Rate of Return - Dividend Growth Rate)

Plugging in the given values:

Dividend = $3.55
Required Rate of Return = 12.1% = 0.121
Dividend Growth Rate = 3.95%

Stock Price = $3.55 / (0.121 - 0.0395) = $72.08

Therefore, the stock price in 13 years will be $72.08.