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# The last dividend paid by KU dairy was \$1.00. The dairy growth rate is expected to...

The last dividend paid by KU dairy was \$1.00. The dairy growth rate is expected to be a constant 5% for 2 years, after which dividends are expected to grow at a rate of 10%. The company required rate of return on equity is 12%. Calculate the current price of the common stockThe last dividend paid by KU dairy was \$1.00. The dairy growth rate is expected to be a constant 5% for 2 years, after which dividends are expected to grow at a rate of 10%. The company required rate of return on equity is 12%. Calculate the current price of the common stock

 Required rate= 12.00% Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value 1 1 5.00% 1.05 1.05 1.12 0.9375 2 1.05 5.00% 1.1025 60.638 61.7405 1.2544 49.21915 Long term growth rate (given)= 10.00% Value of Stock = Sum of discounted value = 50.16 Where Current dividend =Previous year dividend*(1+growth rate)^corresponding year Total value = Dividend + horizon value (only for last year) Horizon value = Dividend Current year 2 *(1+long term growth rate)/( Required rate-long term growth rate) Discount factor=(1+ Required rate)^corresponding period Discounted value=total value/discount factor

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