A company has a constant growth of 4%, and a required rate of return of 18%. It has just paid a dividend of $2.50, what is the current share price valuatio
Question
A company has a constant growth of 4%, and a required rate of return of 18%. It has just paid a dividend of $2.50, what is the current share price valuatio
Solution
The current share price valuation can be calculated using the Gordon Growth Model, which is a model used to determine the intrinsic value of a stock, excluding external factors such as market conditions.
The formula for the Gordon Growth Model is:
P = D * (1 + g) / (k - g)
Where: P = price of the stock D = most recent dividend g = constant growth rate k = required rate of return
Given: D = $2.50 g = 4% or 0.04 k = 18% or 0.18
Substituting these values into the formula, we get:
P = 2.50 * (1 + 0.04) / (0.18 - 0.04)
P = 2.60 / 0.14
P = $18.57
Therefore, the current share price valuation is $18.57.
Similar Questions
The Co. just paid a dividend of $1 per share. Analysts expect its dividend to grow at 25 percent per year for the next three years and then 5 percent per year thereafter. If the required rate of return on the stock is 18 percent, what is the current value of the stock?
What should be the current price of a share of stock if a $5 dividend was just paid, the stock has a required return of 20%, and a constant dividend growth rate of 6%?
A company’s dividend is expected to grow at 20% for the next six years. After that, the growth is expected to be 3% forever. If the required return is 10%, what is the value of the stock at time 6? The dividend just paid was $1
A stock just paid a dividend of $4.25 and is expected to maintain a constant dividend growth rate of 4.4 percent indefinitely. If the current stock price is $72, what is the required return on the stock?
The Bell Weather Company is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 18 percent a year for the next 4 years and then decreasing the growth rate to 3 percent per year. The company just paid its annual dividend in the amount of $1.80 per share. What is the current value of one share of this stock if the required rate of return is 7.30 percent?Multiple Choice$83.59$63.06$72.25$85.39$74.05
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.