Question
In: Finance
You're analyzing the stock of a certain company. The most recent dividend paid was $9 dollars...
You're analyzing the stock of a certain company. The most recent dividend paid was $9 dollars per share. The company's discount rate is 11%, and the firm is expected to grow at 3% per year forever. What should be the stock price today?
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Expert Solution
| Calculation of the current price of the stock | ||||||
| P1 = Current Stock Price = | ? | |||||
| D0 = Current Dividend = | $ 9.00 | |||||
| G = Growth = | 3.00% | or = | $ 0.03 | |||
| cost of Equity = Ke = | 11.00% | or = | $ 0.11 | |||
| P1 = D1 / Ke - g | ||||||
| D1 = | D0 | X | Growth rate | |||
| D1 = | $ 9.00 | X | $ 1.03 | |||
| D1 = | $ 9.27 | |||||
| P1 = | D1 | "/" By | Ke | |||
| P1 = | $ 9.27 | "/" By | $ 0.11 | |||
| P1 = | $ 84.27 | |||||
| Answer = Stock Price of the Today = | $ 84.27 | |||||
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