Question

​Bolwork Inc. is expected to pay a dividend of $5 per share next year. Bolwork's dividends are expected to grow by 3 percent annually. The required rate of return for Bolwork stock is 15 percent. Based on the dividend discount model, a fair value for Bolwork stock is $____ per share.

Answer 1

fair value for Bolwork stock is $0.4166

Step-by-step explanation:

given data

dividend = $5 per share

grow rate = 3 %

required return = 15 %

to find out

fair value for Bolwork stock

solution

we will apply here stock price formula that is

stock price = dividend / required return - growth rate

put all these value we get

stock price = dividend / required return - growth rate

stock price = 5 / 15 - 3

stock price = 5 / 12

stock price is = 0.4166

fair value for Bolwork stock is $0.4166