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Case #4 Valuing Stock The dividend has grown from $1.00 per share on November 13, 2012...
Case #4 Valuing Stock
The dividend has grown from $1.00 per share on November 13, 2012 to $2.80 during 2018. You think this growth rate will continue for three more years and then fall to the long-term growth rate of 9.29 percent predicted by analysts. Discount rate is 13 percent.
Given these parameters, the company’s stock is worth____________ per share.
I'm still learning finance, may i have step-by-step how to slove these four case, it will be very greatful if you could help me on this, Thank you.
Solutions
Expert Solution
growth rate per annum = (2.80/1)^1/6 - 1 = 18.7207%
dividend next year = 2.80*1.187207
dividend after 2 years = 2.80*1.187207^2
dividend after 3 years = 2.80*1.187207^3
terminal value = 2.80*1.187207^3*1.0929/(0.13 - 0.0929)
| Discount rate | 13.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| - | 0 | - | - |
| 3.324 | 1 | 2.94 | 2.94 |
| 3.946 | 2 | 3.09 | 6.03 |
| 4.685 | 3 | 3.25 | 9.28 |
| 138.021 | 3 | 95.66 | 104.93 |
stock worth = 104.93
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