A stock just paid a dividend of $2. The stock is expected to increase its dividend...

A stock just paid a dividend of $2. The stock is expected to increase its dividend payment by 50% per year for the next 3 years. After that, dividends will grow at a rate of 5% forever. If the required rate of return is 7%, what is the price of the stock today?

Solutions

Expert Solution

Year	Particulars	Cash flow	× discount rate	Present value
1	Dividend	3.00	0.93458	$ 2.80
2	Dividend	4.50	0.87344	$ 3.93
3	Dividend	6.75	0.81630	$ 5.51
3	Share price	354.38	0.81630	$ 289.28
		6.75*(1+ 0.05) /( 0.07-0.05)
Stock price today				$ 301.52

Answer is:

301.52

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

a. A stock just paid a dividend of $1.04. The dividend is expected to grow at...

a. A stock just paid a dividend of $1.04. The dividend is expected to grow at 26.98% for three years and then grow at 4.97% thereafter. The required return on the stock is 11.63%. What is the value of the stock? b. A stock just paid a dividend of $1.17. The dividend is expected to grow at 22.53% for five years and then grow at 4.80% thereafter. The required return on the stock is 14.27%. What is the value of...

A stock just paid a dividend of $2.40. The dividend is expected to grow at a...

A stock just paid a dividend of $2.40. The dividend is expected to grow at a rate of 5% forever. If the stock is currently selling for $25.00, what return do investors require to hold this stock? 18%, 17%, 16%, 15% A project is projected to cost $2,000,000 to undertake. It will generate positive cash inflows as follows: Year 1 - $400,000; Year 2 – 500,000; Year 3 - $650,000; Year 4 – 700,000; Year 5 – 800,000. What is...

A stock just paid a dividend of $2.27. The dividend is expected to grow at 22.36%...

A stock just paid a dividend of $2.27. The dividend is expected to grow at 22.36% for five years and then grow at 3.96% thereafter. The required return on the stock is 10.02%. What is the value of the stock?

A stock just paid a dividend of $1.28. The dividend is expected to grow at 27.28%...

A stock just paid a dividend of $1.28. The dividend is expected to grow at 27.28% for three years and then grow at 3.92% thereafter. The required return on the stock is 11.35%. What is the value of the stock? A stock just paid a dividend of $1.95. The dividend is expected to grow at 25.66% for five years and then grow at 3.74% thereafter. The required return on the stock is 11.13%. What is the value of the stock?...

A stock just paid a dividend of $1.95. The dividend is expected to grow at 25.66%...

A stock just paid a dividend of $1.95. The dividend is expected to grow at 25.66% for five years and then grow at 3.74% thereafter. The required return on the stock is 11.13%. What is the value of the stock? Round to 2 decimal places please.

A stock just paid a dividend for $1.42. The Dividend is expected to grow 24.89% for...

A stock just paid a dividend for $1.42. The Dividend is expected to grow 24.89% for 3 years and then grow 3.83% afterwards. The required return on the stock is 13.43%. What is the value of the stock ?

A stock just paid a dividend of $2.68. The dividend is expected to grow at 24.72%...

A stock just paid a dividend of $2.68. The dividend is expected to grow at 24.72% for three years and then grow at 3.24% thereafter. The required return on the stock is 14.55%. What is the value of the stock?

A stock just paid a dividend of $2.07. The dividend is expected to grow at 27.50%...

A stock just paid a dividend of $2.07. The dividend is expected to grow at 27.50% for three years and then grow at 3.34% thereafter. The required return on the stock is 11.89%. What is the value of the stock?

A stock just paid an annual dividend of $2.7. The dividend is expected to grow by...

A stock just paid an annual dividend of $2.7. The dividend is expected to grow by 6% per year for the next 4 years. The growth rate of dividends will then fall steadily by 0.25% per year, from 6% in year 4 to 5% in year 8 and stay at that level forever. The required rate of return is 12%. What is the expected dividend in 8 years? What is the expected stock price in 8 years? What should be...

A stock just paid a dividend of $1.69. The dividend is expected to grow at 27.92%...

A stock just paid a dividend of $1.69. The dividend is expected to grow at 27.92% for three years and then grow at 3.03% thereafter. The required return on the stock is 10.55%. What is the value of the stock?

Subjects