Determine the price of a share of stock whose last annual dividend payment (D0) was $1.50,...

Determine the price of a share of stock whose last annual dividend payment (D₀) was $1.50, assuming a required rate of return of 12% and considering the following:

The dividend payment is expected to remain constant (i.e., g = 0) indefinitely.
The dividend payment is expected to grow at a constant rate of 3% per year indefinitely.
The dividend payment is expected to grow at a rate of 8% for four years and then immediately decline to 3% indefinitely. See formula 9-5 on page 260 of the book.

Last Dividend	$1.50
Required rate of Return	12.00%
Quoted Price	$16.00

Please show steps in the EXCEL !!!!!

Solutions

Expert Solution

Hi,

Below are excel formulas and values:

Below are the values:

	D0	$1.50
	required return	12%

a)	Share price	$12.50

b)	g	3%
	Share price	17.17

c)	4 years growth rate	8%
	D1	1.62
	D2	1.75
	D3	1.89
	D4	2.04
	Terminal growth rate	3%
	Terminal Value	23.36
	Share price	20.33

Thanks

jeff jeffy answered 1 year ago

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