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?

Expert Solution

P0 = [D0(1 + g1) / (R − g1)]{1 − [(1 + g1) / (1 + R)]^t} + [(1 + g1) / (1 + R)]^t[D0(1 + g2) / (R − g2)]

P0 = [$2.27(1.2236) / (0.1002 − 0.2236)][1 − (1.2236 / 1.1002)^5] + [(1.2236) / (1.1002)]^5[$2.27(1.0396) / (0.1002 − 0.0396)]

P0 = $82.05

jeff jeffy answered 2 years ago

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