How much should you pay for a share of stock that offers a constant growth rate of 13%, requires a 18% rate of return, and is expected to sell for $50 one year from now?

$44.25

Explanation:

procedure 1:

we can determine the present value of the stock using the following formula:

present value = future value / (1 + constant growth rate)ⁿ

present value = $50 / (1 + 13%) = $50 / 1.13 = $44.25

procedure 2 (optional):

future value = future dividend / (required rate of return - constant growth rate)

$50 = future dividend / (18% - 13%)

future dividend = $50 x 5% = $2.50

now we must determine the dividend for the current year:

current dividend = future dividend / (1 + constant growth rate)

current dividend = $2.50 / (1 + 13%) = $2.50 / 1.13 = $2.21

now we apply the Gordon growth model:

present value = dividend / (required rate of return - constant growth rate)

present value = $2.21 / (18% - 13%) = $2.21 / 5% = $44.25

lbc corporation makes and sells a product called product wz. each unit of product wz requires 4.1 hours of direct labor at the rate of $20.00 per direct labor-hour. management would like you to prepare a direct labor budget for june. the company plans to sell 28,000 units of product wz in june. the finished goods inventories o