Sander's Group is expected to pay an annual $3.53 dividend at the end of this year. If you expect Sander's Group's dividend to grow by 6% per year forever and Sander's Group's equity cost of capital is 11.9% p.a. (compounded annually), then the value of a share of Sander's Group is closest to? (Round your answer in dollars to 2 decimal places, e.g. put 1204.42 if your answer is 1204.4243.)

This problem involves calculating the value of a stock based on the **Dividend Discount Model (DDM)** for a stock with **constant growth**. The formula for the value of a stock $ P_0 $ is given by the **Gordon Growth Model**:

\[
P_0 = \frac{D_1}{r - g}
\]

Where:
- $ P_0 $ is the price of the stock today.
- $ D_1 $ is the dividend at the end of the year (given as $3.53).
- $ r $ is the equity cost of capital (given as 11.9% or 0.119).
- $ g $ is the growth rate of the dividend (given as 6% or 0.06).

### Step 1: Plug in the values to the formula:

\[
P_0 = \frac{3.53}{0.119 - 0.06}
\]

### Step 2: Calculate the denominator:

\[
0.119 - 0.06 = 0.059
\]

### Step 3: Calculate the stock price:

\[
P_0 = \frac{3.53}{0.059} \approx 59.83
\]

Thus, the value of a share of Sander's Group is approximately **$59.83**.

Would you like more details or have any questions?

Here are 5 follow-up questions:
1. How does the dividend growth rate affect the stock price?
2. What is the significance of the equity cost of capital in stock valuation?
3. How would the stock price change if the growth rate increased or decreased?
4. How does the Gordon Growth Model assume dividends will behave in the future?
5. Can this model be used for companies with irregular dividend patterns?

**Tip:** The Gordon Growth Model is only applicable if the growth rate is less than the cost of capital, otherwise the model becomes unstable.

Learn how to calculate the value of a share of Sander's Group using the Gordon Growth Model. This finance problem involves determining the stock price with an annual dividend of $3.53, a dividend growth rate of 6%, and an equity cost of capital of 11.9%. Suitable for college-level finance students.

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