Question

Value a Constant Growth Stock Financial analysts forecast Wal-Mart Stores (WMT) growth for the future to be 11.00 percent. Their recent dividend was $1.53. What is the value of their stock when the required rate of return is 16.00 percent?

Answer 1

The value of stock using the Constant Growth Model is :

Po = D1/ Re - g

D1 is the dividend paid next year,

The recent dividend is $1.53, the required rate of return is 16% and the growth rate is 11%.

So, the dividend paid next year is = $1.53 * 1.11

So, as per the model, the price of the stock will be,

Po = $1.6983/ 0.16 - 0.11

= $33.966

= $33.97 ( rounded off to two decimal places)

The value of Wal mart stores is $33.97.