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Question #7 ABC,. Inc just paid a dividend of $49.49. The dividends are expected to grow...

Question #7

ABC,. Inc just paid a dividend of $49.49. The dividends are expected to grow by 21% in Years 1-4. After that, the dividends are expected to grow by 6% each year. If the required rate of return is 23%, what is today's price of the stock?

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Answer #1

The present value of stock price is the summation of all future dividend payments.

The formula to be used here to calculate present value of dividends after 4 years in perpetuity is:

Dividend payments till 4 year can be discount back at given rate of return.

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