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Radiant stock paid a dividend of $3 last year. Based on its recent performance and future...

Radiant stock paid a dividend of $3 last year. Based on its recent performance and future outlook, investors are expecting Radiant’s earnings and dividends to decline at a constant rate of 3% per year. If radiant’s cost of equity is 10%, the value of a radiant stock is closest to?

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Answer #1

The answer uploaded is derived by using the Dividend Discount Model (DDM) also it is known as Gordon Growth Model. The answer is $ 22.38 i.e value of the stock. Since the dividend growth is falling, the price of the stock is also low. If the dividend is in growth stage and rising the value of the stock will be more compared to current price.

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