RHM - (Dividend discount model) Assume RHM is expected to...

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Unformatted text preview: (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%? Solution: D1( Cash Dividend)= r(Required return on RHM)= g(rate of growth)= P0(current market value)= $5.60 0.10 0.06 D1/(r­g) = $140.00 ...
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