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13 January, 11:46

Von Bora Corporation (VBC) is expected to pay a $ 3.50 dividend at the end of this year. If you expect VBC's dividend to grow by 5 % per year forever and VBC's equity cost of capital is 10 %, then the value of a share of VBS stock is closest to:

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  1. 13 January, 13:41
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    The answer is $70

    Explanation:

    Here, the formula to be used is called Dividend Discount Model. It is one of the ways to determine the cost of equity.

    The formula is:

    Ke = D1/Po + g

    Ke is the cost of Equity

    D1 is the next year dividend

    Po is the present value of the equity (stock)

    g is the growth rate.

    Ke = 10percent

    D1 = $3.5

    Po = ?

    g = 5percent

    0.1 = 3.5/Po + 0.05

    Po = 3.5 / (0.1-0.05)

    Po = $70
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Home » Business » Von Bora Corporation (VBC) is expected to pay a $ 3.50 dividend at the end of this year. If you expect VBC's dividend to grow by 5 % per year forever and VBC's equity cost of capital is 10 %, then the value of a share of VBS stock is closest to:
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