Question
In: Finance
Company XYZ common stock just paid a dividend of $2.00 per share and its dividend is...
Company XYZ common stock just paid a dividend of $2.00 per share and its dividend is expected to grow at 10 percent per year for three years and then grow at 4 percent per year forever. XYZ stocks have a 13 percent required return. You should you be willing to pay?
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Expert Solution
| Year | t | Cash Flow | Discounting Factor [1/(1.13^t)] |
PV of Cash Flow (cash flow*discounting factor) |
||||
| 1 | 1 | 2 | + | 10% | = | 2.2 | 0.884955752 | 1.946902655 |
| 2 | 2 | 2.2 | + | 10% | = | 2.42 | 0.783146683 | 1.895214974 |
| 3 | 3 | 2.42 | + | 10% | = | 2.662 | 0.693050162 | 1.844899532 |
| 3 | 3 | Terminal Value= [(2.662+4%)/(13%-4%)] |
30.76088889 | 0.693050162 | 21.31883904 | |||
| Expected Share Price today =sum of PVs |
27.0058562 = $27.01 |
jeff jeffy answered 2 years agoRelated Solutions
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