Question

Thomas Brothers is expected to pay a $0 50 per share dividend at the end of the year (i.s., D1=$0.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the stock’s current value per share?

Answer 1

$6.25

Step-by-step explanation:

Use the dividend discount model the Gordon growth model

given

expected dividend per share = $0.50

growth rate =7%

Required rate o return = 15%

P = D1/r-g

=0.50/0.15-0.07

=$6.25