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Casino Inc. expects to pay a dividend of $4 per share at the end of year...

Casino Inc. expects to pay a dividend of $4 per share at the end of year 1 (Div1) and these dividends are expected to grow at a constant rate of 5 percent per year forever. If the required rate of return on the stock is 15 percent, what is the current value of the stock today?

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Answer #1

Current value of stock = D1 / required rate - growth rate

Current value of stock = 4 / 0.15 - 0.05

Current value of stock = 4 / 0.1

Current value of stock = $40

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