The Commuter Solutions Company just paid an annual dividend of $1.12.

The Commuter Solutions Company just paid an annual dividend of $1.12. If you expect a constant growth rate of 4% and have a required rate of return of 13%, what is the current stock price according to the constant growth dividend model?

A) $12.44
B) $12.94
C) $13.46
D) There is not enough information to answer this question.

ANSWER

Answer: B
Explanation: B) The Dividend Growth Model states that P0 = .
Inserting our values gives: P0 = = = = $12.94.