Gordon growth model: Price at t=0 "P0" = D1 / (r - g)
where D1 is the next dividend
D1 = D0( 1+g)
D1 = 2.49(1.08996) = 2.714
P0 = 2.71 / ( 0.14 - 0.08996)
P0 = $54.15667, round to $54.16
Your answer may vary slightly depending on when / how you round the intermediate numbers.
Kathy plc recently paid a common stock dividend of $2.49. Eight years ago the common stock dividend was $1.25. If dividends continue to grow at the same annual rate as they did over the past eight years, and investors require a 14% rate of return on the stock, what is the value of the stock?
