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Sunny Inc. has just paid a dividend of $3.40. An analyst forecasts annual dividend growth of...

Sunny Inc. has just paid a dividend of $3.40. An analyst forecasts annual dividend growth of 8 percent for the next five years; then dividends will decrease by 1 percent per year in perpetuity. The required return is 11 percent (effective annual return, EAR). What is the current value per share according to the analyst?

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Answer #1

Dividend just paid(D0) = $3.40

Expected Growth rate of Dividend for next 5 years(g) = 8%

Dividend growth rate thereafter forever(g1) = 1%

Required rate of Return(Ke) = 11%

Calculating the Intrinsic Value of Stock:-

P0 = 3.308+3.219+3.132+3.047+2.965+29.944

P0 = $45.61

So,  the current value per share is $45.61

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