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Newport Printing paid a $2.50 dividend over the past year. During the coming year, the dividend is expected to rise by five percent, while the required return on stocks in this risk class is eleven percent. What is the value of Newport Printing

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Answer: $43.75

Explanation:

The value of Newport Printing stock can be calculated using the Dividend Growth Model which uses dividends and a growth rate to calculate the value of stock.

Formula is,

P = D( 1 + g) / ( r - g)

P is the price of stock

D is the dividend

g is the growth rate

r is the required return.

P= 2.5( 1 + 0.05) / (0.11 - 0.05)

= 2.625/0.06

= $43.75