Problem 11-01

The dividend-growth model may be used to value a stock:

V = (D0 (1 + g)) / (k - g)

1. What is the value of a stock if: D₀ = $3.60 k = 12% g = 7%
2. What is the value of this stock if the dividend is increased to $5.00 and the other variables remain constant?
3. What is the value of this stock if the required return declines to 9 percent and the other variables remain constant?
4. What is the value of this stock if the growth rate declines to 6 percent and the other variables remain constant?
5. What is the value of this stock if the dividend is increased to $4.10, the growth rate declines to 6 percent, and the required return remains 12 percent?