Hi, could you please help me. I don't understand how can we get the share price(Nov. 2016) = $41.22

Wesfarmers just paid $1.86 as dividend per share. It is expected to increase its dividend by 2% per year forever, and the expected return is 7.46%. What should be its current share price?

D0 = 1.86, g = 2%,R = 7.46% (why?CAPM Ch.)

D1 = 1.86*1.02;D2 = 1.86*1.02^2...

We use constant growth formula(DDM):

Intrinsic value, P0 = D0(1+g)/(R-g)

= 1.86*1.02/(0.0746-0.02) = $34.74

Share price(Nov. 2016) = $41.22