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Consider the stock of SLB Inc., a growth stock that will pay no dividend the next...

Consider the stock of SLB Inc., a growth stock that will pay no dividend the next year. Starting in year two, the company will pay a dividend of $3 and will increase it by 10% for the next three years. Afterwards, dividends will grow by 5% per year indefinitely. The stock has a required rate of return of 15%.

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Expert Solution

Expected dividend in 6th year= (3*110%*110%*110%*105%)=$4.19265

Share price at the end of 5th year=(expected dividend in sixth year)/(required rate of return - growth rate)

= 4.19265/(.15-.05)

= $ 41.9265

Current share price= (41.9265)/(1.15)^5

= $20.844880

jeff jeffy answered 2 years ago
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