The company will pay its first dividend of $3 at the end of 4 years. The dividend would remain the same in the coming years with required rate of 10% Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless. Value of the stock when the dividends are growing at a constant rate is P 0 = D 1 r s − g = D 0 ( 1 + g ) r s − g w h e r e , D 1 = dividend paid next year D 0 = dividend paid this year r s = required rate of return g = growth rate of dividend in perpetuity Special case, when the growth rate of dividend is zero, then P 0 = D 1 r s

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43 -ACC-121-71: CH 04 HW-X Question 7 - CH 04 HW - Exercise X ezto.mheducation.com/ext/map/index.html?_con=con&external_browser=0&launchUrl=https%253A%252F%252Fconnect.mheducation.com%252Fcon vo Support L Lenovo McAfee Dashboard | Piedm... Information System... My Shelf | Brytewav... My Shelf | Bryteway... Exercises & Problems Saved Help Sa Scribners Corporation produces fine papers in three production departments-Pulping, Drying, and Finishing. In the Pulping Department, raw materials such as wood fiber and rag cotton are mechanically and chemically treated to separate their fibers. The result is a thick slurry of fibers. In the Drying Department, the wet fibers transferred from the Pulping Department are laid down on porous webs, pressed to remove excess liquid, and dried in ovens. In the Finishing Department, the dried paper is coated, cut, and spooled onto reels. The company uses the weighted-average method in its process costing system. Data for March for the Drying Department…

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Chapter 7, Problem 12PROB

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The company will pay its first dividend of $3 at the end of 4 years. The dividend would remain the same in the coming years with required rate of 10%

Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless.

Value of the stock when the dividends are growing at a constant rate is

P0=D1rs−g=D0(1+g)rs−gwhere,D1=dividend paid next yearD0=dividend paid this yearrs=required rate of returng=growth rate of dividend in perpetuity

Special case, when the growth rate of dividend is zero, then

P0=D1rs

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