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Compute the value of a share of common stock of Lexus Hotel Berhad whose most recent...

Compute the value of a share of common stock of Lexus Hotel Berhad whose most recent dividend was RM2.50 and is expected to grow at 3.50 percent per year for the next 5 years, 5 percent per year for the next 3 years, after which the dividend growth rate will increase to 6 percent per year indefinitely. Assume 10.00 percent required rate of return.

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Expert Solution

Required rate= 10.00%
Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value
1 2.5 3.50% 2.5875 2.5875 1.1 2.3523
2 2.5875 3.50% 2.6780625 2.6780625 1.21 2.21327
3 2.6780625 3.50% 2.771794688 2.771794688 1.331 2.08249
4 2.771794688 3.50% 2.868807502 2.868807502 1.4641 1.95943
5 2.868807502 3.50% 2.969215764 2.969215764 1.61051 1.84365
6 2.969215764 5.00% 3.117676552 3.117676552 1.771561 1.76
7 3.117676552 5.00% 3.27356038 3.27356038 1.9487171 1.67985
8 3.27356038 5.00% 3.437238399 91.087 94.5242384 2.14358881 44.09625
Long term growth rate (given)= 6.00% Value of Stock = Sum of discounted value = 57.99
Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 8 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

jeff jeffy answered 4 months ago
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