To determine the stock's current value per share, we can use the Gordon Growth Model (GGM), which is a method for valuing a stock by assuming constant growth in dividends. The formula for the GGM is as follows:
[tex]\[ P_0 = \frac{D_1}{r - g} \][/tex]
Where:
- [tex]\(P_0\)[/tex] is the current stock price.
- [tex]\(D_1\)[/tex] is the expected dividend at the end of the year.
- [tex]\(r\)[/tex] is the required rate of return.
- [tex]\(g\)[/tex] is the growth rate of the dividend.
Given the information:
- Expected dividend ([tex]\(D_1\)[/tex]) = Rs 15
- Growth rate ([tex]\(g\)[/tex]) = 8% or 0.08
- Required rate of return ([tex]\(r\)[/tex]) = 15% or 0.15
Let's plug these values into the GGM formula:
[tex]\[ P_0 = \frac{15}{0.15 - 0.08} \][/tex]
First, calculate the difference in the denominator:
[tex]\[ 0.15 - 0.08 = 0.07 \][/tex]
Next, divide the expected dividend by this difference:
[tex]\[ P_0 = \frac{15}{0.07} \][/tex]
[tex]\[ P_0 = 214.2857142857143 \][/tex]
Thus, the stock's current value per share is approximately Rs 214.29.
By using the Gordon Growth Model with the given parameters, we determine that the stock's current value per share is Rs 214.29.
