The Black Forest Cake Company just paid an annual dividend of $5

Finance Jun 23, 2021

The Black Forest Cake Company just paid an annual dividend of $5.27. If you expect a constant growth rate of 5.72 percent and have a required rate of return of 11.43 percent, what is the current stock price according to the constant growth dividend model?

Round the answer to two decimal places.

Expert Solution

Computation of Current Stock Price according to the constant growth dividend model:

Current Stock Price = Dividend for Next year/(Required Rate of Return - Growth Rate)

= $5.27*(1+5.72%)/(11.43%-5.72%)

= $5.57/5.71%

Current Stock Price = $97.57

So, Current Stock Price according to the constant growth dividend model is $97.57

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