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Marty28, Investment Manager
Category: Homework
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Experience:  BA Economics GPA 4.0, Level 2 candidate in the CFA program, GMAT score 770
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I am trying to calculate the value of a common stock. The stock

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I am trying to calculate the value of a common stock. The stock is selling for \$80 per share with a par value of \$5. This stock recently paid a 2.10 dividend and the firms' earning per share have increased from 2.40 to 4.48 in the past 5 yrs. An equivalent amount of growth in the dividend is expected. Required rate of return is 15%. I am stumped. Can someone help? Thank you.
Submitted: 6 years ago.
Category: Homework
Expert:  Marty28 replied 6 years ago.
There are many ways to calculate value however this problem seems like it is looking for you to use the Gordon Growth Dividend Discount Model.

Value = (Next years Dividend)/(Required rate of return - Growth Rate)

First compute the growth rate with calculator = 13.3%

Next year's div. = 1.133*2.10 = 2.3793

Value = 2.3793 / (.15-.133) = \$139.96
Marty28, Investment Manager
Category: Homework
Satisfied Customers: 26
Experience: BA Economics GPA 4.0, Level 2 candidate in the CFA program, GMAT score 770
Marty28 and 4 other Homework Specialists are ready to help you
Customer: replied 6 years ago.
Can you tell me how you figured the growth rate? Thank you.
Expert:  Marty28 replied 6 years ago.
THIS ANSWER IS LOCKED!

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