Hames conventioneers inc currently (d0) pays a $2.40 common stock dividend. Dividends have been recently growing at a 15% annual rate and are expected to continue growing at this rate for the next 3 years, then at 10% rate for the next two years, and thereafter at a 5% rate into the foreseeable future. What is the current value of hames conventioneer's common stock to an investor requiring a 18 percent rate of return?
Answer : Calculation of Current Value of Stock
Current value is the sum of Dividend Payment and Horizon Value.
| Year | Dividend | PVF @18% | Present Value of Dividend |
| 0 | 2.4 | ||
| 1 | 2.76 (2.4 * 1.15) | 0.847457627 | 2.338983051 |
| 2 | 3.174(2.76 * 1.15) | 0.71818443 | 2.27951738 |
| 3 | 3.6501 (3.174*1.15) | 0.608630873 | 2.221563548 |
| 4 | 4.01511(3.6501*1.10) | 0.515788875 | 2.070949071 |
| 5 | 4.416621 (4.01511*1.10) | 0.437109216 | 1.930545744 |
| 5 (Horizon Value) | 35.6727081[(4.416621*1.05)/(0.18-0.05)] | 0.437109216 | 15.59286947 |
| Current Stock Price | 26.43442826 or 26.43 |
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