Emerson Electric common stock is selling for $36.75. par value is $5. stock recently paid $1.32 in dividend and the firm's earnings per share increased from $1.49 to $3.06 in the past 5 years. The firm expects to grow at the same rate in the future. What is the value of stock. The required rate of return is 15%.

To calculate the value of the stock using the Dividend Discount Model (DDM), we need to perform the following steps:

Step 1: Calculate the Dividend Growth Rate (g)
To find the growth rate, we can use the formula:

g = (EPS2 - EPS1) / EPS1

where:
EPS2 = Earnings per share after 5 years = $3.06
EPS1 = Earnings per share before 5 years = $1.49

g = ($3.06 - $1.49) / $1.49 = 1.03

The Dividend Growth Rate (g) is 1.03 or 103%.

Step 2: Calculate the Dividend per Share (DPS)
The dividend per share is given as $1.32.

Step 3: Calculate the Expected Dividend per Share next year (D1)
To calculate the expected dividend per share next year, we can multiply the DPS by (1 + g):

D1 = DPS * (1 + g) = $1.32 * (1 + 1.03) = $1.32 * 2.03 = $2.68

Step 4: Calculate the Value of the Stock (P0)
Using the Dividend Discount Model (DDM), the value of the stock can be calculated as:

P0 = D1 / (r - g)

where:
D1 = Expected dividend per share next year = $2.68
r = Required rate of return = 15% or 0.15
g = Dividend growth rate = 103% or 1.03

P0 = $2.68 / (0.15 - 1.03) = $2.68 / (-0.88) = -$3.05

The calculated value of the stock using the Dividend Discount Model (DDM) is -$3.05. However, a negative value is not meaningful and suggests that the assumptions used in the model are not appropriate for this stock. It is recommended to review the calculations or consider using alternative valuation methods.

To determine the value of the Emerson Electric common stock, we will use the dividend discount model (DDM). The DDM calculates the present value of expected future dividends to determine the stock's intrinsic value.

First, we need to calculate the future dividends. The question states that the stock recently paid a dividend of $1.32. To estimate the future dividend, we will use the growth rate and the earnings per share.

The growth rate is given as the increase in earnings per share over the past 5 years, from $1.49 to $3.06. We can calculate the average annual growth rate as follows:

Growth rate = (Ending EPS / Beginning EPS)^(1 / Number of Years) - 1
= (3.06 / 1.49)^(1 / 5) - 1
≈ 0.1267 or 12.67%

Next, we can calculate the future dividend:

Future Dividend = Current Dividend * (1 + Growth Rate)
= $1.32 * (1 + 0.1267)
= $1.32 * 1.1267
≈ $1.4870 or $1.49 (rounded)

Now, we are ready to calculate the value of the stock using the DDM formula:

Stock Value = Dividend / (Required Rate of Return - Growth Rate)
= $1.49 / (0.15 - 0.1267)
= $1.49 / 0.0233
≈ $63.98

Therefore, the value of the Emerson Electric common stock is approximately $63.98.