Question

Microsoft has just paid a dividend of $1 per share (this dividend is already paid sometimes called Dividend 0). It is estimated that the companys dividend will grow at a rate of 35% in year 1 and 20% in year 2. The dividend is then expected to grow at a constant rate of 7% thereafter. The companys opportunity cost of capital is 11% what is an estimate Microsofts stock using the nonconstant growth technique?

Answer #1

To calculate price of stock we require to first calculate the dividend of Year 1 and Year 2 and terminal value or say price of share at the end of Year 2 using gordon growth model and find the present value of all future value i.e. current price of stock.

D0 = $1

D1 = $1 x (1+g) = $1 x (1+0.35) = $1.35

D2 = $1.35 x (1+g) = $1.35 x (1+0.20) = $1.62

Terminal Value or say price of share at the end of year -2

= D3 / (ke - g) (D3 = D2 x (1+g) = $1.62 x (1+0.07) = $1.7334

= $1.7334 / (0.11 - 0.07)

= $1.7334 / 0.04

= $43.335

Now we find out the present value of future cashflow

Year | Dividend | DF @ 11% | PV |

1 | $1.35 | 0.900900901 | $1.22 |

2 | $1.62 | 0.811622433 | $1.31 |

Stock Price at end of year 2 | $43.335 | 0.731191381 | $31.69 |

Present Value / Current Value of Stock | $34.22 |

Estimated value of stock price of microsoft is $34.22.

1. Best Buy has just paid a dividend of $4 per share (this
dividend is already paid therefore it is not included in the
current price). The companys dividend is estimated to grow at a
rate of 35% in year 1 and 20% in year 2. The dividend is then
expected to grow at a constant rate of 9.8% thereafter. The
companys opportunity cost of capital is 12% what is the current
value of Best Buy stock?
2. General Foods...

The In-Tech Co. just paid a dividend of $1 per share. Analysts
expect its dividend to grow at 25% per year for the next three
years and then at a constant growth rate per year thereafter. The
estimate of the constant growth rate of dividends is based on the
long term return of equity 25% and payout ratio 80%. If the
required rate of return on the stock is 18%, what is the current
value of the stock? Clearly show...

A company, GameMore, has just paid a dividend of $4 per share,
D0=$ 4 . It is estimated that the company's dividend
will grow at a rate of 16% percent per year for the next 2 years,
then the dividend will grow at a constant rate of 7% thereafter.
The company's stock has a beta equal to 1.4, the risk-free rate is
4.5 percent, and the market risk premium is 4 percent. What is your
estimate of the stock's current...

A company has just paid a dividend of $ 2 per share,
D0=$ 2 . It is estimated that the company's dividend
will grow at a rate of 15 % percent per year for the next 2 years,
then the dividend will grow at a constant rate of 5 % thereafter.
The company's stock has a beta equal to 1.4, the risk-free rate is
4.5 percent, and the market risk premium is 4 percent. What is your
estimate of the...

A company, GameMore, has just paid a dividend of $2 per share,
D0=$ 2 . It is estimated that the company's dividend
will grow at a rate of 15% percent per year for the next 2 years,
then the dividend will grow at a constant rate of 6% thereafter.
The company's stock has a beta equal to 1.4, the risk-free rate is
4.5 percent, and the market risk premium is 4 percent. What is your
estimate of the stock's current...

a. ABC Company has just paid a dividend of $1.00 per share.
Dividends are paid annually. Analysts estimate that dividends per
share will grow at a rate of 20% for the next 2 years, at 15% for
the subsequent 3 years, and at 3% thereafter. If the shareholders’
required rate of return is 12% per year, then what is the price of
the stock today? What will be the ex-dividend price at the end of
the first year? What will...

Schnus Corporation just paid a dividend of $5.75 per share,
and that dividend is expected to grow at 20 percent each year for
the next two years, and at constant rate of 8.50% per year
thereafter. The company’s beta is 1.50, the required return on the
market is 12.50%, and the risk-free rate is 2.40%. Calculate the
company’s intrinsic value.
thankyou !

SCI just paid a dividend ( D0 ) of $3.12 per share, and its
annual dividend is expected to grow at a constant rate (g) of 6.50%
per year. If the required return ( rs ) on SCI’s stock is 16.25%,
then the intrinsic value of SCI’s shares is per share. Which of the
following statements is true about the constant growth model? The
constant growth model can be used if a stock’s expected constant
growth rate is less than...

A)
Assume a corporation has just paid a dividend of $ 1.03 per
share. The dividend is expected to grow at a rate of 4.4% per year
forever, and the discount rate is 8.1%.
What is the Capital Gains yield of this stock?
B)
You're analyzing the stock of a certain company. The most recent
dividend paid was $3 dollars per share. The company's discount rate
is 10%, and the firm is expected to grow at 4% per year forever....

Spotify just paid a cash dividend of $1 per share. Investors
require a 16% return from investments such as this. What is the
value of Spotify stock if the dividend is expected to grow at 25
percent for the next four years before settling at a 5% growth rate
thereafter?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 7 minutes ago

asked 9 minutes ago

asked 18 minutes ago

asked 32 minutes ago

asked 34 minutes ago

asked 53 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago