Question

In: Finance

Dividend is expected to be constant after year 4, with a growth rate of 4%. The cost of equity is 10%. What is the stock price, P0 , today?

Company has the following dividend stream.

D1 = 1.37

D2 = 3.35

D3 = 4.42

D4 = 5.76

Dividend is expected to be constant after year 4, with a growth rate of 4%. The cost of equity is 10%. What is the stock price, P0 , today?

Solutions

Expert Solution

P0 = D1/(1 + r)^1 + D2/(1 + r)^2 + D3/(1 + r)^3 + D4/r * 1/(1 + r)^3

P0 = 1.37/(1 + 0.10)^1 + 3.35/(1 + 0.10)^2 + 4.42/(1 + 0.10)^3 + 5.76/0.10 * 1/(1 + 0.10)^3

P0 = 1.2454545455 + 2.7685950413 + 3.32081142 + 43.2757325319

P0 = $50.6105935387

The stock price today, P0 = $50.6105935387

jeff jeffy answered 2 years ago
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