Walmart has just paid an annual dividend of $3.71. Dividends are expected to grow by 7%...

Walmart has just paid an annual dividend of $3.71. Dividends are expected to grow by 7% for the next 4 years, and then grow by 4% thereafter. Walmart has a required return of 11%. (Note the wording of this problem. Typically, when a problem says "expected to grow for the next X years", they mean that the the cashflow will grow constantly up to the end of year X, then the cashflow at year X will grow at some other rate in years X+1, X+2 etc.)

A:What is the terminal value in four years (P4P4)?

B: What is the value of the stock now?

Expert Solution

A:What is the terminal value in four years (P4P4)?

Terminal value = Dividend in year 4 * (1 + Constant Growth) / (WACC - Growth rate)

Terminal value = $4.86 * (1 + 0.04) / (11% - 4%) = $72.25

B: What is the value of the stock now?

$61.14

*Future Dividend = Current Dividend * (1 + Growth rate)

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jeff jeffy answered 2 years ago

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