This preview shows page 1. Sign up to view the full content.
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 ...
View Full
Document
 Spring '12
 MIKEWOODARD
 Accounting, Dividends

Click to edit the document details