What is the value of a common stock if the firm’s earnings and dividends are growing annually at 10%, the current dividend is $1.32, and investors require a 15% return on investment?

Stock valuation problems | Business & Finance homework help

The value of the common stock can be calculated using the dividend discount model, which states that a stock’s market value is equal to the present value of its future cash flows. In this case, we can calculate the expected annual dividend for each year by multiplying $1.32 by 1.10 (the 10% growth rate):
Year 1: $1.32 x 1.10 = $1.452

Year 2: $1.452 x 1.10 = $1.6072

And so on…

We can then use these figures to calculate the total expected dividends over a period of time and discount them back to their net present value at a 15% return on investment rate:

Total Expected Dividends = Year 1 + Year 2 + … + Year n

Total Expected Dividends (discounted) = Year 1/R + Year 2/R^2 + … + Year n/R^n

Where R is the required return on investment rate (15%). Therefore, once all of these calculations are done, we will have our final answer for what the market value of this stock should be given the provided information about its earnings and dividends growth and investor expectations for returns.