Question

Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at...

Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price?

Homework Answers

Answer #1
Solution:
Last Dividend (D0)= $ 1.55
Growth rate (for 2 years) (g)= 1.5%
Constant Growth Rate (g) = 8%
Required Return (ke) = 12%
Current Stock Price = ?
P0 = D1/( 1+Ke)^1+D2/ (1+ke)^2+ D3/(Ke-g)(1+Ke)^2
D1= D0(1+g)
D1= 1.55(1+0.015)= 1.57325
D2= D1(1+g)
D2= 1.57325(1+0.015)= 1.5968
D3= D2(1+g)
D3= 1.5968(1+0.08)= 1.7245
P0= 1.57325/(1.12)^1+1.5968(1.12)^2+1.7245/(0.12-0.08)(1.12)^2
P0= 1.57325*0.8929+1.5968*0.7972+43.11*0.7972
P0= $37.05
Current Stock Price (P0) = $ 37.05
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
. The last dividend paid by Wilden Corporation was $1.55. The dividend growth rate is expected...
. The last dividend paid by Wilden Corporation was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price? Answer: 37.05
Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at...
Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (r) is 12.0%. What is the best estimate of the current stock price?
ABC Company's last dividend was $0.7. The dividend growth rate is expected to be constant at...
ABC Company's last dividend was $0.7. The dividend growth rate is expected to be constant at 7% for 4 years, after which dividends are expected to grow at a rate of 4% forever. The firm's required return (rs) is 15%. What is its current stock price (i.e. solve for Po)?
ABC Company's last dividend was $3.5. The dividend growth rate is expected to be constant at...
ABC Company's last dividend was $3.5. The dividend growth rate is expected to be constant at 6% for 4 years, after which dividends are expected to grow at a rate of 4% forever. The firm's required return (rs) is 9%. What is its current stock price (i.e. solve for Po)?
The Ramirez Company's last dividend was $1.3. Its dividend growth rate is expected to be constant...
The Ramirez Company's last dividend was $1.3. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 11%. What is the best estimate of the current stock price? $43.92 $38.06 $40.99 $46.85 $35.14
JB Company's last dividend was $2.00. The dividend growth rate is expected to be constant at...
JB Company's last dividend was $2.00. The dividend growth rate is expected to be constant at 25% for 3 years, after which dividends are expected to grow at a rate of 7% forever. Tapley's required return (rs) is 10%. What is Tapley's current stock price?
The Ramirez Company's last dividend was $1.75. Its dividend growth rate is expected to be constant...
The Ramirez Company's last dividend was $1.75. Its dividend growth rate is expected to be constant at 24% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rS) is 12%. What is the best estimate of the current stock price? Do not round intermediate calculations. a. $36.94 b. $52.47 c. $45.34 d. $41.98 e. $31.90
The P. Born Company's last dividend was $1.50. The dividend growth rate is expected to be...
The P. Born Company's last dividend was $1.50. The dividend growth rate is expected to be constant at 20% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If Born's required return (rs) is 13%, what is the company's current stock price?
Primanti Brothers’ last dividend was $2.00. The dividend growth rate is expected to be constant at...
Primanti Brothers’ last dividend was $2.00. The dividend growth rate is expected to be constant at 10% for 3 years, after which dividends are expected to grow at a rate of 3% forever. If the firm's required return (rs) is 5%, what is its current (expected) stock price?
The Gordo Company's last dividend was $1.40 (Do). Its dividend growth rate is expected to be...
The Gordo Company's last dividend was $1.40 (Do). Its dividend growth rate is expected to be constant at 20% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 10% Find horizon value. Explain What is the best estimate of the current stock price? Explain If the market price of Horton Co is $27.00 per share is the stock over- or undervalued? Why do you think so?