Question

Walmart corp. has just distributed 3$ dividend to the shareholders. Market experts beleive that the company will grow by 10% in one year and then shrink by 5% for two consecutive years. After that, experts beleive that the company will be growing consistently by 5%. Based on these expectations, what should be the current value of a Walmart stock? (Required return = 13%)

Answer 1

Price of Stock = PV of CFs from it.

Div Calculation:

Year	Cash Flow / Div	Formula	Calculation
1	$                     3.30	D0 ( 1 + g)	3 ( 1 + 0.1 )
2	$                     3.14	D1 ( 1 + g)	3.3 * ( 1 + -0.05 )
3	$                     2.98	D2 ( 1 + g)	3.14 * ( 1 + -0.05 )
4	$                3.1272	D3 ( 1 + g)	2.98 * ( 1 + 0.05 )

P3 Calculation:

Particulars	Amount
nth Period	4
D4	$ 3.1272
Growth rate	5.00%
Ke	13%

Price of Stock is nothing but PV of CFs from it.
P3 = D4 / [ Ke - g ]
= $ 3.13 / [ 13 % - 5 % ]
= $ 3.13 / [ 8 % ]
= $ 39.09

Price Today:

Year	Particulars	Cash Flow	PVF @13 %	Disc CF
1	D1	$      3.30	0.8850	$              2.92
2	D2	$      3.14	0.7831	$              2.46
3	D3	$      2.98	0.6931	$              2.06
3	P3	$   39.09	0.6931	$           27.09
Price Today				$           34.53