Question

CEPS Group just paid an annual dividend of OMR 5.25 a share. The firm plans to...

CEPS Group just paid an annual dividend of OMR 5.25 a share. The firm plans to increase the annual dividends by 2 percent over the next 3 years. After that time, the dividends will be held constant at OMR 6.5 per share. What is this stock worth today at a 12 percent discount rate?

Homework Answers

Answer #1
Amount growth rate
D0                 5.25000
D1                 5.35500 2%
D2                 5.46210 2%
D3                 5.57134 2%
D4                 6.50000

Now P3 = D4/r = 6.5/0.12 = 54.16667

Thus worth of the stock today = present value of D1 to D3 and present value of P3

= 5.355/1.12 + 5.46210/1.12^2 + 5.57134/1.12^3 + 54.1667/1.12^3

= OMR 51.66

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