Header Motor, Inc, paid a $3.04 dividend last year. At a constant growth rate of 4...

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Header Motor, Inc, paid a $3.04 dividend last year. At a constant growth rate of 4...

Header Motor, Inc, paid a $3.04 dividend last year. At a constant growth rate of 4 percent, what is the value of the common stock if the investors require a 12 percent rate of return?.

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Answer 1

Answer #1

Solution:

value of the common stock is $39.52

Working Notes:

Using Gordon growth model : P0 = D1 / (Ke - g), where D1 = D0(1+g)

ke = cost of Equity = required rate of return = 12%

Po=current share price = Value of the common stock = ??

g= growth rate= 4%

D0= Current Dividend=$3.04 per share

P0 = D0(1+g)/(Ke -g)

P0 = 3.04(1.04)/(0.12-0.04)

P0 = $39.52

value of the common stock is $39.52

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Answer 2

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Header Motor, Inc, paid a $3.04 dividend last year. At a constant growth rate of 4...

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Header Motor, Inc, paid a $3.04 dividend last year. At a constant growth rate of 4...

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Add Answer to: Header Motor, Inc, paid a $3.04 dividend last year. At a constant growth rate of 4...

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