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A firm will pay a dividend of $3.41 next year. The dividend is expected to grow at a constant rate of 2.19% forever and the r
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Answer #1

As per Gordon model, share price or value of stock is given by:

Share price = D1 / k -g

where, D1 is next years' dividend = $3.41, k is the required rate of return = 13.92% and g is the growth rate = 2.19%

Putting the values in the above formula, we get,

Share price = $3.41 / 13.92% - 2.19%

Share price = $3.41 / 11.73%

Share price = $3.41 / 0.1173

Share price = $29.07

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