In: Finance
Dividend Just paid (D0) = |
4 | ||||
Growth rate for 4 Years = |
25% | or 0.25 | |||
Growth rate after 4th Year = |
2.4% or | 0.024 | |||
So, D1 = (4 +25%) = |
5 | ||||
D2 = (5 +25%) = |
6.25 | ||||
D3 = (6.25 +25%) = |
7.8125 | ||||
D4 = (7.8125 + 25%) = |
9.765625 | ||||
D5 = (9.765625 +2.4%)= |
10 | ||||
Discount rate = |
17.5% or | 0.175 | |||
Value of stock at end of 4th Year |
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Formula for P4 = D5/(ke-g) |
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P4 = 10/(0.175 - 0.024) |
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66.22516556 | |||||
Present value of stock |
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Present value of stock is Present value of Dividends upto 4th yar and Present value of stock value at end of 4th year. |
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Year | Cash flows | P.V.F. @ 17.5% |
Present value |
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1 | D1 | 5 | 0.8510638298 | 4.255319149 | |
2 | D2 | 6.25 | 0.7243096424 | 4.526935265 | |
3 | D3 | 7.8125 | 0.6164337382 | 4.81588858 | |
4 | D4 | 9.765625 | 0.524624458 | 5.123285723 | |
4 | P4 | 66.22516556 | 0.524624458 | 34.74334159 | |
53.46477031 | |||||
So, Value of a share of GRF is $53.46. |
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