In: Finance
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?
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 |