Xinhua Manufacturing Company has been generating stable revenues that are not expected to grow at least for the next 12 months. The company's last dividend was $3.25, and it is unlikely to change the amount paid out. If the required rate of return is 12 percent, what is the stock worth today?

Select answer from the options below

$21.23

$3.69

$27.08

$39.00

To calculate the stock's value today, we can use the **Dividend Discount Model (DDM)** for a perpetuity, given that the dividends are stable and not expected to grow.

The formula for a stock with no growth is:

\[
P_0 = \frac{D}{r}
\]

Where:
- $ P_0 $ = Price of the stock today
- $ D $ = Dividend (last dividend was $3.25)
- $ r $ = Required rate of return (12% or 0.12)

Substitute the given values into the formula:

\[
P_0 = \frac{3.25}{0.12} = 27.08
\]

Thus, the stock is worth **$27.08** today.

### Answer: $27.08

Do you want more details or have any questions?

Here are 5 related questions:
1. How does a growing dividend affect the stock price calculation?
2. What is the formula for a Dividend Discount Model with constant growth?
3. How does the required rate of return influence stock valuation?
4. Why does the Dividend Discount Model assume perpetual dividends?
5. Can this model be applied if a company has irregular dividend payments?

**Tip:** Always ensure that you use the correct rate of return, as small changes can significantly impact the stock price calculation.

Xinhua Manufacturing Company has been generating stable revenues that are not expected to grow at least for the next 12 months. The company's last dividend was $3.25, and it is unlikely to change the amount paid out. If the required rate of return is 12 percent, what is the stock worth today?

Calculate the stock price for Xinhua Manufacturing Company using the Dividend Discount Model (DDM) with a fixed dividend of $3.25 and a required return of 12%. This guide explains how to apply the no-growth DDM formula to find that the stock is worth $27.08 today. Ideal for finance students and investors.

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