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upland motors recently paid a $1.48 per share annual dividend. dividends are expected to increase by 2.5 percent annually. what is one share of this stock worth today if the appropriate discount rate is 14 percent? $12.87 b. $13.04 c. $14.16 d. $13.19 e. $12.25

Sagot :

Option d. $13.19 is the correct answer. The current price of the share of Upland Motors is $13.19

The dividend discount model (DDM) is one of many methods analysts use to value a stock. This method is based on the theory that the stock is the present value of all its future dividends. Instead of using free cash flows to value a company (like the discounted cash flow model (DCF) does), this method uses the net present value of future dividends.

We can use the DDM to calculate the current price of the stock:

Current Price = Dividend / (Discount Rate - Growth Rate)

First, we need to calculate the first dividend, which is $1.48 plus a 2.5% growth rate

1.48 * (1 + 0.025) = 1.48 * 1.025 = 1.517

Now you can solve for the current price:

Current Price = Dividend / (Discount Rate - Growth Rate)

1.517 / (0.14 - 0.025) = 13.1913043478 = $13.19

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