The next year the common stock of Gold Corp will pay a divid

The next year the common stock of Gold Corp. will pay a dividend of $5.82 per share. If the company is growing at a rate of 4.85 percent per year, and your required rate of return is 14.61 percent, what is Gold\'s company stock worth to you? The answer is 59.63. How did they come up with that answer?

Solution

Answer

Value of stock per share = Dividend per share for next year/ [ cost of capital (i.e. required rate of return) – Growth rate ]

= $ 5.82 / (0.1461 – 0.0485)

=$ 5.82 / 0.0976

= $ 59.63

Answer : Gold’s Company stock per share is worth $ 59.63