Walmart has just paid an annual dividend of $3.22. Dividends are expected to grow by 8% for the next 4 years, and then grow by 2% thereafter

Walmart has just paid an annual dividend of $3.22. Dividends are expected to grow by 8% for the next 4 years, and then grow by 2% thereafter. Walmart has a required return of 11%.

Part 1

What is the expected dividend in four years?

Part 2

What is the terminal value in four years (P4P4)?

Part 3

What is the value of the stock now?

Solutions

Expert Solution

Dividend in 4 years = 3.22(1.08)⁴ = $4.38

Terminal Value = 4.38(1.02)/(0.11 - 0.02)

Terminal Value = $49.65

Stock Value = 3.22[(1.08)/(1.11)] + 3.22[(1.08)/(1.11)]² + 3.22[(1.08)/(1.11)]³ + 3.22[(1.08)/(1.11)]⁴ + 49.65/(1.11)⁴

Stock Value = $44.75

jeff jeffy answered 2 years ago

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