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# Boehm Incorporated Is Expected To Pay A $1.50 Per Share Boehm Incorporated is expected to pay a$1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm’s stock? Share ### 1 Answer 1. 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: ${P}_{0}=\frac{{D}_{1}}{{r}_{s}-g}P_0 = \frac\left\{D_1\right\}\left\{r_s – g\right\}$ 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
• ${r}_{s}=15\mathrm{%}=0.15r_s = 15\% = 0.15$
• $g=7\mathrm{%}=0.07g = 7\% = 0.07$

Plugging these values into the formula:

${P}_{0}=\frac{1.50}{0.15-0.07}P_0 = \frac\left\{1.50\right\}\left\{0.15 – 0.07\right\}$

${P}_{0}=\frac{1.50}{0.08}P_0 = \frac\left\{1.50\right\}\left\{0.08\right\}$

${P}_{0}=18.75P_0 = 18.75$

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