Von Bora Corporation (VBC) is expected to pay a $3.00 dividend at the end of this year. If you...

Question:

Von Bora Corporation (VBC) is expected to pay a $3.00 dividend at the end of this year. If you expect VBC's dividend to grow by 6% per year forever and VBC's equity cost of capital to be 13%, then the value of a share of VBS stock is closest to .

Dividend Growth Model:

Dividend growth model assumes dividend grows at a constant rate g indefinitely, and prices the stock to the present value of dividends. If the next dividend payment is D, and the required rate of return is r, then the price of the stock is D/(r - g).

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The Dividend Growth Model

from Finance 101: Principles of Finance

Chapter 14 / Lesson 3
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