1. Woidtke Manufacturing's stock currently sells for $38 a share. The stock just paid a dividend of $1.25 a share(D₀=1.25), and the dividend is expected to grow forever at a constant rate of 7% a year. What stock price is expected 1 year from now?

Why the rate is the dividend's growth rate? why not is the require rate of return of the stock

solution: 40.66 P1=PO*(1+g)^1 38*(1+0.07)^1 PO= stock's current value per share P1=Price the end of year 1 g=growth