ch 7 The next cividiond (DiNO) is s180, the growth rate \( (g) \) is \( 6 \% \), and the required rate of retum \( (9) \) is 12\%. What is the stock price. sccerding to the constent growth dividend medel?

To find the stock price using the constant growth dividend model, you can use the formula: \[ P_0 = \frac{D_1}{r - g} \] where \( P_0 \) is the stock price, \( D_1 \) is the next dividend, \( r \) is the required rate of return, and \( g \) is the growth rate. In this case, the next dividend \( D_1 = 180 \), the growth rate \( g = 0.06 \), and the required rate of return \( r = 0.12 \). Plugging in the values, you get: \[ P_0 = \frac{180}{0.12 - 0.06} = \frac{180}{0.06} = 3000 \] So, the stock price is \( 3000 \). For future stock price analysis, it’s key to always check how sustainable the growth rate is. Consistently high growth rates may not be achievable forever. Companies can face competition, market saturation, or other challenges. So, keep an eye on the market and company fundamentals! When putting together financial models, ensure accuracy in your inputs. A common mistake is to confuse growth rate with the required rate of return. Double-check your calculations or use a financial calculator to validate your results before making investment decisions.