Posted by **Teresa** on Thursday, March 13, 2008 at 7:03pm.

Company Q has just paid a dividend of $1.40 per share. Its dividend is expected to grow at 5% per year perpetually. If the required return is 10%, what is the value of a share in Company Q?

What I know:

Current Div=1.40

Required rate of return=10%

Retention Ratio=90% ?

Growth rate=5%

I think this formula??

DIV/r-g

- Finance -
**Damon**, Thursday, March 13, 2008 at 7:45pm
Finance not my thing but--

If we are talking about forever, then all that matters is the value of the flow of dividends and your discount rate or required rate of return.

Vo = 1.40 + 1.40 (1.05/1.1) + 1.40 (1.05/1.1)^2 .... geometric series

g = 1.4

r = 1.05/1.1 = .954545...

sum of infinite geometric series = g/(1-r)

=1.4/ .0454545...

=30.8

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