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Assume your firm's dividends per share are expected to grow indefinitely by 3% a year. Next...

Assume your firm's dividends per share are expected to grow indefinitely by 3% a year. Next year's dividend is $4.50 and the required rate of return (i.e. equity holder's opportunity cost of capital) is 8%. Assuming this is the best information available regarding the future of this firm, what would be the most economically rational value of the stock today (i.e. today's "price")?

56.25

150.00

90.00

92.70

45.00
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Answer #1

Stock price = D1 / required rate - growth rate

Stock price = 4.5 / 0.08 - 0.03

Stock price = 4.5 / 0.05

Stock price = $90.00

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