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A stock just paid a dividend of $2.41. The dividend is expected to grow at 23.14%...

A stock just paid a dividend of $2.41. The dividend is expected to grow at 23.14% for three years and then grow at 4.91% thereafter. The required return on the stock is 13.07%. What is the value of the stock?


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Answer format: Currency: Round to: 2 decimal places.
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Answer #1

The value of stock must be equal to present value of all future dividends.

Current dividend is 2.41.

Growth rate for first 3 years is 23.14%

Return is 13.07%.

Growth rate after 3 years is 4.91%.

The expression for stock price after 3 years will be:

Here,

G1 is growth rate till year 3.

G2 is growth rate after 3 years.

The above expression must be added in stock price along with present value of first 3 dividend payments.

so, stock price will be:

stock price is $48.62.

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