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Boehm Incorporated is expected to pay a $2.20 per share dividend at the end of this year (i.e., D1 = $2.20). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 13%. What is the estimated value per share of Boehm's stock? Do not round intermediate calculations. Round your answer to the nearest cent.

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TomShelby

Answer:

stock price $22

Explanation:

We use the dividend grow model to evaluate the stock

[tex]\frac{divends}{return-growth} = Intrinsic \: Value[/tex]

D1 = 2.20

grow = g = 3% = 3/100 = 0.03

return = 13% = 13/100 = 0.13

we calculate:

[tex]\frac{2.20}{0.13-0.03} = Intrinsic \: Value[/tex]

value of the stock 2.2/0.1 = 22

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