Constant Growth Model
• Suppose Big D, Inc. just paid a dividend of $.50. It is expected to increase its dividend by 2% per year. If the market requires a return of 15% on assets of this risk, how much should the stock be selling for?
• P0 = .50(1+.02)/(.15 - .02) = $3.92
• P0 = .51/(.15 - .02) = $3.92