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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.
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
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Customer: replied 7 years ago.
Can you tell me how you figured the growth rate? Thank you.

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