Problem 11-01

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

Round your answers to the nearest cent.

a. What is the value of a stock if: D₀ = $3.00 k = 10% g = 6%

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b. What is the value of this stock if the dividend is increased to $5.00 and the other variables remain constant?

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c. What is the value of this stock if the required return declines to 8.5 percent and the other variables remain constant?

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d. What is the value of this stock if the growth rate declines to 4 percent and the other variables remain constant?

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e. What is the value of this stock if the dividend is increased to $4.10, the growth rate declines to 4 percent, and the required return remains 10 percent?

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