A B D E E F G H 1 Homework 7 - Stock Valuation 2 (1) 3 Suppose Motel 6 just paid a dividend of $2.00 per share on its stock. 4 The dividends are expected to grow at a constant rate of 10% per year indefinitely. 5 If the investors require a return of 16%, what is the current price? 6 7 8 Stock Price = D1/(r- g) D1 = DO * (1+g) = $2 * (1+10%) = $2.20 9 r = 16% 10 11 Stock Price = 01/(r - g) = $2.20 / (16% - 10%) = 12 13 14 8 = 10% S