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Assume you obtain the following information about a certain company. |Total assets|$54,000,000...

Question:

Assume you obtain the following information about a certain company.

Total assets $54,000,000
Total equity $27,550,514
Net income $5,294,636
EPS $6.26
Dividend payout ratio 42%
Required return 14.0%

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.

Given,
*EPS = $6.26
*Dividend payout ratio = 42%
So, dividend per share = 0.42 * $6.26 = $2.63

We know...

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Learn more about this topic:

The Dividend Growth Model

from Finance 101: Principles of Finance

Chapter 14 / Lesson 3
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