Question

What is the value of a dividend stock that pays a dividend of: year 1 $3...

What is the value of a dividend stock that pays a dividend of:

year 1 $3
year 2 $3
year 2 $3.25
Then will grow at 1% thereafter. The WACC is 7% and the cost of equity is 9%.

Please show details of each step in Excel format.
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Homework Answers

Answer #1

Price of share = Present Value of dividends and terminal value discounted at the cost of equity

Year 1 = 3

Year 2 = 3

Year 3 =3.25

Termina Value for the third year = Dividend in year3 * (1+g) / (cost of equity -g)

Please let me know in case you have any queries and I will be happy to assist you.

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