Gentleman Gym just paid its annual dividend of $2 per share, and it is widely ex

Question

Gentleman Gym just paid its annual dividend of $2 per share, and it is widely expected that the dividend will increase by 5% per year indefinitely.

What price should the stock sell at if the discount rate is 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What price should the stock sell at if the discount rate is 10%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Gentleman Gym just paid its annual dividend of $2 per share, and it is widely expected that the dividend will increase by 5% per year indefinitely.

Explanation / Answer

Share price at 12% (P0) D1÷(r-g) Here, Expected dividend (D1) $                   2.10 2*(1+5%) Required return ( r) 12.00% Growth rate (g) 5.00% Share price at 12% (P0) $                 30.00 2.10/(12%-5%) Share price at 10% (P0) D1÷(r-g) Here, Expected dividend (D1) $                   2.10 2*(1+5%) Required return ( r) 10.00% Growth rate (g) 5.00% Share price at 10% (P0) $                 42.00 2.10/(10%-5%)

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