1 Answer

1. 

   Anonymous

   2024-07-07T08:21:13-04:00Added an answer on July 7, 2024 at 8:21 am

   We use the Gordon Growth Model (also known as the Dividend Discount Model for a perpetuity growing at a constant rate) to find the value per share of Boehm Incorporated’s stock. The formula for this model is:

   $P_0=\frac{D_1}{r_s-g}P\_0\; =\; \backslash frac\{D\_1\}\{r\_s\; –\; g\}$​​

   where:

   • $P_{0}P\_0$ is the current stock price.
   • $D_{1}D\_1$​ is the dividend at the end of the first year.
   • $r_{s}r\_s$​ is the required rate of return.
   • $gg$ is the growth rate of the dividend.

   Given:

   • D_1 = $1.50
   • $r_s=15\mathrm{\%}=0.15r\_s\; =\; 15\backslash \%\; =\; 0.15$
     
   • $g=7\mathrm{\%}=0.07g\; =\; 7\backslash \%\; =\; 0.07$
     

   Plugging these values into the formula:

   $P_0=\frac{1.50}{0.15-0.07}P\_0\; =\; \backslash frac\{1.50\}\{0.15\; –\; 0.07\}$​

   $P_0=\frac{1.50}{0.08}P\_0\; =\; \backslash frac\{1.50\}\{0.08\}$​

   $P_0=18.75P\_0\; =\; 18.75$
   

   So, the value per share of Boehm’s stock is $\mathrm{\$}18.75\backslash \$18.75$.

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