Assume that US Medware is a constant growth company whose la

Assume that U.S. Medware is a constant growth company whose last dividend per share (D0) was $1.00. The dividend is expected to grow at a constant rate of 8 percent per year. What is the stock’s value if investors require a 15 percent rate of return?

Solution

Current price=D1/(Required return-Growth rate)

=(1*1.08)/(0.15-0.08)

which is equal to

=$15.43(Approx).