Orange Company dividends will grow at 8% during the next 4 years, 7% during year 5,...

Orange Company dividends will grow at 8% during the next 4 years, 7% during year 5, after that they will grow at a 6%. Last year dividend was $1.50. The risk-free rate of return is 4% and the risk premium is 5% What is the value of the stock? Please show calculations

Expert Solution

Risk-free rate	4%
Risk premium	5%
Cost of capital	Risk-free rate + Risk premium
Cost of capital	4%+5%
Cost of capital	9.00%


Year	Growth rate	Dividend computation	Dividend	PV factor @9%, 1/(1+r)^time	Dividend * PV factor
1	8.00%	1.5*(1+8%)	$ 1.62	0.9174	$ 1.49
2	8.00%	1.62*(1+8%)	$ 1.75	0.8417	$ 1.47
3	8.00%	1.75*(1+8%)	$ 1.89	0.7722	$ 1.46
4	8.00%	1.89*(1+8%)	$ 2.04	0.7084	$ 1.45
5	7.00%	2.04*(1+7%)	$ 2.18	0.6499	$ 1.42
5			$ 77.15	0.6499	$ 50.14
				Current share price	$ 57.43

Current Dividend	$ 2.18
Rate of return	9.00%
Growth Rate	6.00%

Share Price at the horizon i.e. T5	=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
Share Price at the horizon i.e. T5	=2.1835847808*(1+0.06)/(0.09-0.06)
Share Price at the horizon i.e. T5	$ 77.15

jeff jeffy answered 2 years ago

do dividends are expected to grow at 25% per year during the next 3 years, 15%...

do dividends are expected to grow at 25% per year during the next 3 years, 15% over the following year, and then 8% per year. the required return on this stock is 13% and the stock sells for $76 per share today. what is the projected dividend for the coming year

Visa has just paid an annual dividend of $1.24. Visa's dividends will grow by 7% for the next 4 years, and then grow by 1% thereafter.

Visa has just paid an annual dividend of $1.24. Visa's dividends will grow by 7% for the next 4 years, and then grow by 1% thereafter. Visa has a required return of 9%.Part 1What is the intrinsic value of Visa stock?

Walmart has just paid an annual dividend of $3.22. Dividends are expected to grow by 8% for the next 4 years, and then grow by 2% thereafter

Walmart has just paid an annual dividend of $3.22. Dividends are expected to grow by 8% for the next 4 years, and then grow by 2% thereafter. Walmart has a required return of 11%.Part 1What is the expected dividend in four years?Part 2What is the terminal value in four years (P4P4)?Part 3What is the value of the stock now?

Assume that dividends in the next three years (starting from year 2017) will grow at a...

Assume that dividends in the next three years (starting from year 2017) will grow at a rate of 13% annually. Further, it is assumed that dividends will grow at a rate of 11% for the next four years (year 4 to 7). Thereafter it is assumed that the company will grow at a constant growth rate of 7% per annum. The last dividend paid (for 2016) is $1.52. Assume a required rate of return of 12%. Clearly show the following:...

3. The expected dividend next year is $1.30 and dividends are expected to grow at 5%...

3. The expected dividend next year is $1.30 and dividends are expected to grow at 5% forever. What is the value of this promised dividend stream if the discount rate is a) 8% b) 5% c) 3%

Sunday Inc. just paid dividends of $2 per share. Assume that dividends will grow as follows, 5% next year, 8% in year two, and 10% in year 3.

Sunday Inc. just paid dividends of $2 per share. Assume that dividends will grow as follows, 5% next year, 8% in year two, and 10% in year 3. After that growth is expected to level off to a constant growth rate of 11% per year thereafter. The required rate of return is 15%. a. Calculate the present value of the stock. (Po) b. What is the value of the stock in Year 2 (P3) ?

A stock will pay an annual dividend next year of $5 per share. Dividends will grow...

A stock will pay an annual dividend next year of $5 per share. Dividends will grow at 30% for the following 2 years and then at 5% thereafter. What is V0 if K=0.1?

A stock will pay no dividends for the next 7 years. Then it will pay a...

A stock will pay no dividends for the next 7 years. Then it will pay a dividend of $9.62 growing at 4.31%. The discount rate is 11.34%. What should be the current stock price?

MM company expects to grow at a rate of 25per cent for the next 5 years...

MM company expects to grow at a rate of 25per cent for the next 5 years and then settle to a constant-growth rate of 6 per cent. The company's recent dividend was $2.35. The required rate of return is 15 per cent a.Find the present value of the dividends during the rapid growth b.What is the price of the share at the end of year c.What is the price of the share today

Magnetic Corporation expects dividends to grow at a rate of 17% for the next two years....

Magnetic Corporation expects dividends to grow at a rate of 17% for the next two years. After two years dividends are expected to grow at a constant rate of 6.1%, indefinitely. Magnetic’s required rate of return is 11.2% and they paid a $1.65 dividend today. What is the value of Magnetic Corporation’s common stock per share? (Show your answers to the nearest cent) What is Dividend at end of year 1: What is Dividend at end of year 2: What...

Question