Question

Carter Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $3.80 per share in 8 years, and you expect dividends to grow perpetually at 4.8 percent per year thereafter. If the discount rate is 17 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Hank’s Barbecue just paid a dividend of $1.65 per share. The dividends are expected to grow at a 10.5 percent rate for the next five years and then level off to a 5.5 percent growth rate indefinitely. If the required return is 8.5 percent, what is the value of the stock today? What if the required return is 13.5 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

1.
P8 = (D8 * (1+g)) / (Ke - g)
= ($3.80 * (1 + 4.8%)) / (17% - 4.8%)
= $3.9824 / 12.2%
= $32.64

Current stock price = (D8 + P8) / (1+ r)^n
= ($3.80 + $32.64) / (1+17%)^8
= $36.44 / 1.17^8
= $10.38

Current stock price = $10.38

2.

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