Answer:
To estimate the future stock price using the dividend discount model (DDM), you can use the formula:
\[ P = \frac{D_1} {r - g} \]
Where:
- \( P \) is the future stock price.
- \( D_1 \) is the expected dividend per share in the next year.
- \( r \) is the required rate of return (equity cost of capital).
- \( g \) is the growth rate of dividends.
Given:
- \( D_1 = $5.90 \) (dividend expected next year)
- \( r = 15\% \) (equity cost of capital)
- \( g = 0\% \) (assuming no growth in dividends)
Substitute these values into the formula to find the future stock price. Keep in mind that this is a simplified calculation, and real-world scenarios may involve dividend growth or other factors.
\[ P = \frac{5.90} {0.15 - 0} \]
Calculate \( P \) to get the estimated future stock price.
