A firm is planning to pay a dividend of $1.50 in a year. The growth rate of dividend is expected to be 4% a year and the required rate of return is 9%. What is the value of this stock

Step-by-step explanation:

P = D1 / (r - g)

P=Current price or stock value

D1 = the value of next year's dividend= $1.5

r = the cost of equity capital=9%

g = the dividend growth rate=4%

The dividend discount model's formula is:

P = D1 / (r - g)

D1=1.5

g=4%=0.04

r=9%=0.09

Then,

P=1.5/(0.09-0.04)

P=1.5/0.05

P=$30

The value of the stock is $30