(Common stock valuation) Mosser Corporation common stock paid $2.28 in dividends last year and is expected...

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(Common stock valuation) Mosser Corporation common stock paid $2.28 in dividends last year and is expected...

(Common stock valuation) Mosser Corporation common stock paid $2.28 in dividends last year and is expected to grow indefinitely at an annual 5 percent rate. What is the value of the stock if you require a return of 12 percent?

The value of the Mosser Corporation common stock is $ . (Round to the nearest cent.)

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Answer 1

Answer #1

Last Dividend = $2.28
Growth Rate = 5%
Required Return = 12%

Expected Dividend = Last Dividend * (1 + Growth Rate)
Expected Dividend = $2.28 * 1.05
Expected Dividend = $2.394

Stock Price = Expected Dividend / (Required Return - Growth Rate)
Stock Price = $2.394 / (0.12 - 0.05)
Stock Price = $2.394 / 0.07
Stock Price = $34.20

The value of the Mosser Corporation common stock is $34.20

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Answer 2

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