What is the value of a share of stock of HOV Inc. to an investor who...
What is the value of a share of stock of HOV Inc. to an investor who requires a 12 percent rate of return if HOV's current dividend is $1.20? Assume earnings and dividends are expected to grow at a compound annual rate of 7 percent.
Homework Answers
| Value of a share using the constant dividend growth model = D0*(1+g)/(r-g) | |
| where | |
| D0 = Current dividend | |
| g = growth rate in dividends | |
| r = required return | |
| Substituting available values we have | |
| Value of the share = 1.20*1.07/(0.12-0.07) = | $ 25.68 |
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