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Waterway Natural Foods' current dividend is $10.00. You expect the growth rate to be 0 percent...

Waterway Natural Foods' current dividend is $10.00. You expect the growth rate to be 0 percent for years 1 to 5, and 2 percent for years 6 to infinity. The required rate of return on this firm’s equity is 10 percent.

- The expected dividend at the end of year 5 is $10.

- The expected dividend at the end of year 6 is $10.20

- The expected dividend at the end of year 5 (right after the year 5 dividend is $127.50)

What is the price of the stock today?

**$79.17 was incorrect

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Answer #1

- Current Dividend(D) = $10

Growth rate of Dividend for year 1 to 5 is 0% which means that Dividend in Year 1 to 5 will be $10 per year.

Growth rate of Dividend for years 6 to infinity(g) = 2% per year

Required rate of return(Ke) = 10%

calculating the Price of Stock Today:-

P0 = 9.091+8.264+7.513+6.830+6.209+79.167

P0 = $117.08

So, the price of the stock today is $117.08

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