Assume you obtain the following information about a certain company.
|Dividend payout ratio||42%|
Use the constant-growth DVM to place a value on this company's stock.
The value of this company's stock is:
Dividend Discount Model:
The dividend discount model is used to find a stock price by discounting its future dividends. If the calculated stock price comes out to be higher than the current stock price, then the stock is undervalued. If the stock price comes out to be lower than the current stock price, then the stock is overvalued.
Answer and Explanation:
The value of this company's stock is $102.57.
*EPS = $6.26
*Dividend payout ratio = 42%
So, dividend per share = 0.42 * $6.26 = $2.63
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from Finance 101: Principles of FinanceChapter 14 / Lesson 3
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