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Bryson Industries paid $1.83 per share in dividends yesterday. Its dividends are expected to grow...

Question:

Bryson Industries paid $1.83 per share in dividends yesterday. Its dividends are expected to grow steadily at 6% per year. If the required return is 6.3%, what is the current price ({eq}P_0 {/eq})?

Dividend Gordon growth model:

A dividend Gordon growth model is a stock valuation model that calculates the intrinsic value of the stock based on the growth rate of its future dividend payments. In this model, it excludes the other external and internal factors that may influence the market value of the stock, such as change of management or economic downturn.

Answer and Explanation:

Formula of dividend growth model:

{eq}Stock~value=\displaystyle \frac{D}{k-g}\\ whereas:\\ D=dividend\\ k=required~return\\ g=growth~rate\\ {/eq}

{eq}\begin{align*} Stock~value&=\frac{1.83}{.063-.060}\\ &=\frac{1.83}{.003}\\ &=610.00 \end{align*} {/eq}

The current market value of the stock is $610.00


Learn more about this topic:

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The Dividend Growth Model

from Finance 101: Principles of Finance

Chapter 14 / Lesson 3
9.4K

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