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Alpha Company is a publicly traded corporation. suppose alpha company sells 10$ a share last year...

Alpha Company is a publicly traded corporation. suppose alpha company sells 10$ a share last year and paid a dividend of 6$ a share. and over the long run you expect it to grow at 8% and you require an 11% return. using constant growth ddm, how much will you pay for this stock?

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Answer #1

Last year dividend = $6

Current year dividend = 6* 1.08 = 6.48

Next year dividend = 6.48 * 1.08 = 6.99

Stock price = Next year dividend/required rate – dividend growth rate

                      = 6.99/ .11 - .08

                         = 6.99/ .03

                            = 233

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