Question

MC algo 8-40 Nonconstant Dividends

Mariota Corp. just paid a dividend of $4.10 per share on its stock. The dividend growth rate is expected to be 3.4 forever and investors require a return of 13.2 percent on this stock. What will the stock price be in 10 years?

Answer 1

Please find the below explanation and “ Don’t forget to give a like! Thank you”

P₁₀ = D₁₁ / K_e – g

D₁₁ = D₀ * ( 1+ g)¹¹

   = 4.10 * ( 1 + 0.034)¹¹

   = 4.10 * (1.034)¹¹

   = 4.10 * 1.44453

= 5.922573

k_e = Required return = 13.2%

g = growth rate = 3.4%

P₁₀ = D₁₁ / K_e – g

P₁₀ = 5.922573 / 0.132 – 0.034

P₁₀ = 5.922573 / 0.098

P₁₀ = $60.43

The stock price in 10 years is $60.43