1) Assume that the market expects the ABC long-term stock return is given as R = 15.00% per year based on its risk.

Dividend (D0) = $3.12

Long-term future growth rate (g) = 31.41%

Use the dividend growth model (DGM) formula to compute ABC stock's fair price P0.

P0 = D0(1+g)/(R-g)

OR

P0 = D1/R-g

And, does this calculation outcome make sense to you? (In other words, if R < g, expected return < growth, will the DGM formula still work out sensible answers?)

2) Let's assume ABC's most-current stock price is fair, then use it as P0 = $107.1 in the DGM formula.

Dividend (D0) = $3.12

Long-term future growth rate (g) = 31.41%

P0 = D0(1+g)/(R-g)

OR

P0 = D1/R-g

But the long-term required (expected) stock return R is not given.

With these findings on P0, D0 and g as inputs, what shall be the corresponding R by solving the DGM equation?