Question

ZZZ Industries just paid a dividend of $1.35 per share. The
dividends are expected to grow at a 27 percent rate for the next 5
years and then level off to a 3 percent growth rate indefinitely.
If the required return is 8.51 percent, what is the value (in $) of
the stock today? **Answer to two decimals, carry
intermediate calculations to four decimals.**

******show step******

Answer #1

D0 = 1.35

D1 = 1.35 * 1.27 = 1.7145

D2 = 1.71450 * 1.27 = 2.1774

D3 = 2.1774150 * 1.27 = 2.7653

D4 = 2.76531705 * 1.27 = 3.5120

D5 = 3.511952654 * 1.27 = 4.4602

D6 = 4.4601799 * 1.03 = 4.5940

P5 = D6/ (Required rate - growth rate)

P5 = 4.593985266/ (8.51% - 3%)

**P5 = 83.3754**

**P0 =** 1.71450/ (1.0851)^{1} + 2.1774150/
(1.0851)^{2} + 2.76531705/ (1.0851)^{3} +
3.511952654/ (1.0851)^{4} + 4.4601799/ (1.0851)^{5}
+ **83.37541/** (1.0851)^{5}

P0 = 1.58 + 1.85 + 2.16 + 2.53 + 2.96 + 55.42

**P0 = 66.51**

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