(Common stock valuation) Header Motor Inc. paid a $3.50 dividend last year. At a constant growth rate of 7 percent, what is the value of the common stock if the investors require a rate of return of 23 percent? The value of the Header Motor common stock is $______

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2.35K viewsJanuary 28, 2017

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Darshita 6.14K January 28, 2017 0 Comments

(Common stock valuation) Header Motor Inc. paid a $3.50 dividend last year. At a constant growth rate of 7 percent, what is the value of the common stock if the investors require a rate of return of 23 percent?

The value of the Header Motor common stock is $______

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score 0 · Answer 1 · 2017-01-28T04:54:19+00:00

Answer: Common sock Value = $ 23.41

Working notes for the above answer is as under

Common sock Value

= Dividend in year 1 / ( required rate of return -growth rate)

Now put the figures in to the formaulla as follow

Common sock Value

=3.50*(1.0.7) / 0.23-0.07

Solving this equation we will get

Common sock Value = $ 23.41

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