: The Crescent Corporation just paid a dividend of $2 per share and is expected to continue paying the same amount each year for the next 4 years. If you have a required rate of return of 13%,
To determine the value of the stock, we can use the dividend discount model (DDM), which takes into account the present value of expected future dividends.
According to the DDM formula, the value of a stock can be calculated as follows:
Stock Value = Dividend / (Required Rate of Return - Dividend Growth Rate)
In this case, the dividend is $2 per share and is expected to remain the same for the next 4 years. Therefore, the dividend growth rate is 0% (since the dividend is not expected to grow).
Now, let's calculate the stock value:
Stock Value = $2 / (0.13 - 0) = $2 / 0.13 = $15.38 (rounded to two decimal places)
Hence, the value of the stock is approximately $15.38 per share.