Question

Campbell Supper Co. paid a $0.682 dividend per share in 2013, which grew to $0.83 in 2016. This growth is expected to continue.

What is the value of this stock at the beginning of 2017 when the required return is 8.5 percent?

Answer 1

Dividend paid in year 2013				0.682
Dividend paid in year 2016				0.83
Time = 3 Years
D0 * ( 1+g)^3 =				D3
0.682 * (1+g)^3 =				0.83
(1+g)^3 =				1.217009
1 + g =	(1.217009)^1/3 =			1.067656
g (growth rate ) =				0.067656	or 6.7656%
Required rate of return ( Ke) = 8.5% or				0.085
Dividend Expected for year 2017 is (0.83 + 6.7656%)=				0.886154
Dividend growth model for Valuation of stock
Price of stock = Dividend expected next year / (ke - g)
	0.886154/ ( 0.085 - 0.067656)
	$51.09
So, Value of stock at beginning of year 2017 is $51.09.