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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?

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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:

    P0=D1rsgP_0 = \frac{D_1}{r_s – g}


    • P0P_0 is the current stock price.
    • D1D_1 is the dividend at the end of the first year.
    • rsr_s is the required rate of return.
    • gg is the growth rate of the dividend.


    • D_1 = $1.50
    • rs=15%=0.15r_s = 15\% = 0.15
    • g=7%=0.07g = 7\% = 0.07

    Plugging these values into the formula:

    P0=1.500.150.07P_0 = \frac{1.50}{0.15 – 0.07}

    P0=1.500.08P_0 = \frac{1.50}{0.08}

    P0=18.75P_0 = 18.75

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