Question #53
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 21
Status: Correct
Correct Answer: A
Question
A firm's dividend per share in the most recent year is $4 and is expected to grow at 6% per year forever. If its shareholders require a return of 14%, the value of the firm's stock (per share) using the single-stage dividend discount model (DDM) is:
Answer Choices:
A. $50.00
B. $28.57
C. $53.00
Explanation
The value of the firm's stock is: $4 × [1.06 / (0.14 − 0.06)] = $53.00