In: Accounting
Year | Growth rate | Dividend computation | Dividend | PV factor @15%, 1/(1+r)^time | Dividend * PV factor | |
1 | $ 4.00 | 0.8696 | $ 3.48 | |||
2 | 20.00% | 4*(1+20%) | $ 4.80 | 0.7561 | $ 3.63 | |
2 | $ 50.40 | 0.7561 | $ 38.11 | |||
Current share price | $ 45.22 | |||||
Risk free rate | 5% | |||||
Market risk premium | 5% | |||||
Beta | 2 | |||||
Cost of equity= | Risk free rate + Beta * Market risk premium | |||||
Cost of equity= | 5%+2*5% | |||||
Cost of equity= | 15.00% | |||||
Current Dividend | $ 4.80 | |||||
Rate of return | 15.00% | |||||
Growth Rate | 5.00% | |||||
Share Price at horizon | =Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate) | |||||
Share Price at horizon | =4.8*(1+0.05)/(0.15-0.05) | |||||
Share Price at horizon | $ 50.40 | |||||