Question
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Kilsheimer Company just paid a dividend of $5 per share. Dividends are expected to grow at a constant rate of 7% per year.
Kilsheimer Company just paid a dividend of $5 per share. Dividends are expected to grow at a constant rate of 7% per year. What is the value of the stock to you if the required return is 16%? If the stock is trading for $45 in the market, would you want to buy this stock?
Solutions
Expert Solution
here Diivdend just paid D0 = $5
growth rate g = 7%
rate of return k = 16%
As per dividend discount model
Share Price = D0*(1+g)/(k-g)
= 5*(1+7%)/(16%-7%)
= 5.35/0.09
= $59.44
Since stock is trading at $45 hence it is undervalued as of now. You should buy the stock.
jeff jeffy answered 2 years agoRelated Solutions
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