Question

A stock just paid a dividend of $1.89. The dividend is expected to grow at 26.56% for two years and then grow at 4.20% thereafter. The required return on the stock is 12.56%. What is the value of the stock?

Answer format: Currency: Round to: 2 decimal places.

Answer 1

Stock Dividend just paid(D0) = $1.89

Dividend growth rate for 2 years(g) = 26.56%

Growth Rate thereafter(g1) = 4.20%

Required Rate of Return(Ke) =12.56%

Calculating the Current Value of Stock:-

P0 = $2.1251 + $2.3894 + $29.7816

P0 = $34.30

So, the Value of Stock is $34.30