Teal Corp.'s Stock Price Calculation Dilemma

What is Teal Corp.'s current stock price?

Teal Corp. has been facing difficulties. The last dividend was $2.86, and it's projected to decrease by 3% annually. With a required return of 6%, what is Teal Corp.'s stock price?

Teal Corp.'s Stock Price Calculation

Teal Corp.'s stock price is approximately $31.78.

To determine the stock price of Teal Corp., we can utilize the Gordon Growth Model, also known as the Dividend Discount Model (DDM). This model allows us to calculate the intrinsic value of a stock based on its expected dividends, growth rate, and required return.

The formula for the Gordon Growth Model is as follows:

Stock Price = Dividend / (Required Return - Dividend Growth Rate)

Given data:

Last dividend: $2.86

Dividend growth rate: -3% (falling 3% per year)

Required return: 6%

Substitute the values into the formula:

Stock Price = $2.86 / (0.06 - (-0.03))

Stock Price = $2.86 / 0.09

Stock Price ≈ $31.78

Therefore, Teal Corp.'s stock price is approximately $31.78, which is not matching any of the provided answer choices. This result highlights the importance of utilizing financial models to accurately evaluate stock prices.