Question

CEPS Group is going to pay an annual dividend of OMR 4.71 a share on its common stock next year. This year, the company paid a dividend of OMR 4.35 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth five years from now if the applicable discount rate is 14.5 percent? show the answer in detail.

Answer 1

Last dividend	$         4.35
Next dividend	$         4.71
Dividend growth rate	(4.71-4.35)/4.35
Dividend growth rate	8.28%
To compute share price 5 years from now, we need the dividend at T5
Dividend at T5=	4.35*(1+8.28%)^5
Dividend at T5=	$         6.47
Last dividend	6.47
Rate of return	14.50%
Growth Rate	8.28%
Share Price at the horizon i.e. T5	= Last Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
Share Price at the horizon i.e. T5	=6.47*(1+0.0828)/(0.145-0.0828)
Share Price at the horizon i.e. T5	=$     112.62