## Dividend Growth Model:

The dividend growth model is a stock valuation model that determines the current stock price of a given stock by considering its future dividends, its growth rate and the required return expected on the stock. The present value of the future dividends assumed to grow at a constant rate, discounted using a discounting rate is the current stock price as per the model.

Schnusenberg Corp's current stock price is $11.71. Explanation: As per the data provided by Schnusenberg Corp: • Last dividend, D0 =$0.65 per share
• Constant growth rate, g = 7%
• Beta = 1.45
• Required market return. Rm = 10.5%
• Risk-free return, Rf= 5%
• Required return, r =?
• Current stock price, P0 =?

Computation:

The first step is to determine the required return using CAPM:

• r = Rf + Beta * (Rm - Rf)
• r = 5% + 1.45 * (10.5% - 5%)
• r = 12.98%

The second step is to determine the current stock price using DDM:

• P0 = D1 / (r - g)
• P0 = $0.65 * (1 + 7%) / (12.98% - 7%) • P0 =$0.70 / 5.98%
• P0 = \$11.71