Company Z-prime’s earnings and dividends per share are expected to grow by 3% a year. Its...

Company Z-prime’s earnings and dividends per share are expected to grow by 3% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $9, the market capitalization rate is 11% and next year’s EPS is $16. What is Z-prime’s stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Please note : In above sheet, Stock price is calculated as per Dividend Discount Model. We can also calculate the stock price as per Earning Discount model but will get different result. Stock Price under earning discount model would be $156.42.

jeff jeffy answered 1 month ago

Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its...

Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $9, the market capitalization rate is 9% and next year’s EPS is $14. What is Z-prime’s stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) My guess was: $153.42 and this WAS NOT CORRECT

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