In: Finance
ABC ins's first quarterly dividend of 2$/share is expected to be paid nine months from today. Then on, dividends will decline by 2% per quarter for next three years. After three years, the dividends will start increasing by 1% per quarter in perpetuity. Assume that ABC's required rate of return is 15% (effective annual rate). What is the price of a share of ABC today?
Price of a share of ABC today is present value of all future expected dividend of company discounted at required rate of return.
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.