Question

In: Finance

Consider a stock that most recently paid a dividend of $0.75. The company plans to increase...

Consider a stock that most recently paid a dividend of $0.75. The company plans to increase dividends by 50% each year for the next 3 years, then by 20% each year for 4 years, and then level off to a permanent growth rate in dividends of 6%. If the required return for this stock is 11%, what is the value of the stock today?

Solutions

Expert Solution

value of the stock today is $66.86
Statemnet showing Current Price
Particulars Time PVf 11% Amount PV
Cash inflows (Dividend)                            1.00                   0.9009        1.1250                   1.01
Cash inflows (Dividend)                            2.00                   0.8116        1.6875                   1.37
Cash inflows (Dividend)                            3.00                   0.7312        2.5313                   1.85
Cash inflows (Dividend)                            4.00                   0.6587        3.0375                   2.00
Cash inflows (Dividend)                            5.00                   0.5935        3.6450                   2.16
Cash inflows (Dividend)                            6.00                   0.5346        4.3740                   2.34
Cash inflows (Dividend)                            7.00                   0.4817        5.2488                   2.53
Cash inflows (Price)                          7.00                   0.4817    111.2746                 53.60
Current Price of Stock                 66.86
P7 = D8/ke-g
P7 = 5.2488*1.06/(11%-6%)
P7 = 5.5637/(5%)
P7 = $111.2746

Related Solutions

Consider a stock that most recently paid a dividend of $0.75. The company plans to increase...
Consider a stock that most recently paid a dividend of $0.75. The company plans to increase dividends by 50% each year for the next 3 years, then by 20% each year for 4 years, and then level off to a permanent growth rate in dividends of 6%. If the actual stock price today is $100, what is the implied required rate of return
Consider a stock that most recently paid a dividend of $0.75. The company plans to increase...
Consider a stock that most recently paid a dividend of $0.75. The company plans to increase dividends by 50% each year for the next 3 years, then by 20% each year for 4 years, and then level off to a permanent growth rate in dividends of 6%. If the actual stock price today is $100, what is the implied required rate of return?
A company recently paid an annual dividend of $.65 a share and plans to increase future dividends by three percent annually.
A company recently paid an annual dividend of $.65 a share and plans to increase future dividends by three percent annually. The discount rate is 12 percent. What will the value of this stock be four years from now?$9.52$7.61$6.93$8.37
1. A stock just paid a dividend of $0.75. This quarterly dividend is expected to grow...
1. A stock just paid a dividend of $0.75. This quarterly dividend is expected to grow at a rate of 4% for the next 10 years, after which it will grow at a rate of -2% in perpetuity. What is the price of the stock if the required return is 12% (all rates are APR with quarterly compounding)? 2. A firm has a P/E ratio of 18.5, a payout ratio of 50%, and a required return of 12% per annum....
The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected...
The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.00% per year in the future. The company's beta is 1.75, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P0?
A stock just paid a dividend of $2. The stock is expected to increase its dividend...
A stock just paid a dividend of $2. The stock is expected to increase its dividend payment by 50% per year for the next 3 years. After that, dividends will grow at a rate of 5% forever. If the required rate of return is 7%, what is the price of the stock today?
A stock paid a dividend of $1 per share in 2019. Dividend will increase by 3%...
A stock paid a dividend of $1 per share in 2019. Dividend will increase by 3% for the next two years and remain the same for the next three years. Thereafter, dividend will grow by 2% each year forever. Assume that the beta of the stock is 1.3, the equity risk premium is 5%, and the market return is 6.5%. Find the risk-free rate All things being equal, do you expect the stock to outperform the market? Why? Estimate equity...
A company recently paid a $0.55 dividend. The dividend is expected to grow at a 12.1...
A company recently paid a $0.55 dividend. The dividend is expected to grow at a 12.1 percent rate. At a current stock price of $63.45, what return are shareholders expecting? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
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?
Monsters Inc. is a utility company that recently paid a common stock dividend of $5.45 per share.
Monsters Inc. is a utility company that recently paid a common stock dividend of $5.45 per share. If its divided growth rate is expected to remain at 4 percent per year indefinitely and its equity cost of capital is 9 percent, the current price of a share of Monsters' common stock is closest to $________.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT