Question

Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.0 percent, how much are you willing to pay to purchase one share of this stock today?

Answer 1

$11.33

Step-by-step explanation:

According to the Gordon growth model

V₀=D₀ (1 + g) / r - g

D₀ = $1.42

r = 14%

g= 1.3%

$1.42 x (1.013) / 0.127 = $11.33