3.The Lo Company earned $2.60 per share and paid a dividend of $1.30 per share in the year that just ended. Earning and dividend per share are expected to grow at a rate of 5% per year in the future. Determine the value of the stock:

A. 1.3/.12=$10.8333

B. 1.3/.15=$8.6666

C. The higher the rate of return, the lower the value of the stock.

To determine the value of the stock, we can use the formula for the Gordon Growth Model, which is:

Value of Stock = Dividend per Share / (Required Rate of Return - Growth Rate)

Given information:
Earnings per share = $2.60
Dividend per share = $1.30
Growth rate = 5%

We first need to calculate the required rate of return. Let's assume it to be 12% for this example.

Required Rate of Return = 12%

Now, we can substitute the values into the formula:

Value of Stock = $1.30 / (0.12 - 0.05)

Value of Stock = $1.30 / 0.07

Value of Stock = $18.57 (rounded to two decimal places)

Therefore, the value of the stock is $18.57.

To determine the value of the stock, we can use the Dividend Discount Model (DDM) approach. The DDM calculates the intrinsic value of a stock by discounting the present value of the expected future dividends.

Here's how you can calculate the value of the stock using the DDM:

1. Determine the expected future dividends:
- Given: Earning per share = $2.60 and Dividend per share = $1.30
- The growth rate of dividends is 5% per year.
- To calculate the expected future dividend per share for the next year, multiply the current dividend by the growth rate: $1.30 x 1.05 = $1.365.
- The expected future dividend for the next year is $1.365 per share.

2. Determine the required rate of return:
- The required rate of return typically represents the return investors expect from the stock. It is usually determined based on the risk associated with the stock and market conditions.
- Let's assume a required rate of return of 10%.

3. Calculate the value of the stock using the DDM formula:
- The DDM formula is: Stock Value = Dividend per Share / (Required Rate of Return - Dividend Growth Rate).
- Plugging in the values: Stock Value = $1.365 / (0.10 - 0.05)
- Stock Value = $1.365 / 0.05
- Stock Value = $27.30

Therefore, the value of the stock is estimated to be $27.30 per share. Keep in mind that this is an estimate based on the assumptions used in the calculation. The actual value may differ based on market conditions and other factors.