Stocks problem. Найти цену акции The last dividend on Cefamous’ common stock was $2.25, and the expected growth rate is 7.5%. If you require a rate of return of 22.50%, what is the highest price you should be willing to pay for this stock?
Stocks problem. Найти цену акции The last dividend on Cefamous’ common stock was $2.25, and the expected growth rate is 7.5%. If you require a rate of return of 22.50%, what is the highest price you should be willing to pay for this stock?
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To find the highest price you should be willing to pay for the stock, we can use the Gordon Growth Model, which calculates the value of a stock based on its future dividends.
The formula for the Gordon Growth Model is:
(P = D / (r - g))
Where:
P is the price of the stockD is the last dividend ($2.25)r is the required rate of return (22.50% or 0.225)g is the expected growth rate (7.5% or 0.075)Plugging in the values:
(P = 2.25 / (0.225 - 0.075))
(P = 2.25 / 0.15)
(P = 15)
Therefore, the highest price you should be willing to pay for this stock is $15.