Question

Could I Industries just paid a dividend of $1.15 per share. The dividends are expected to grow at a rate of 18 percent for the next six years and then level off to a growth rate of 7 percent indefinitely. If the required return is 15 percent, what is the value of the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer #1

D0 = 1.15

D1 = 1.15( 1+ 0.18) = 1.357

D2 = 1.357( 1+ 0.18) = 1.60126

D3 = 1.60126( 1+ 0.18) = 1.8894868

D4 = 1.8894868( 1+ 0.18) = 2.229594424

D5 = 2.229594424( 1+ 0.18) = 2.63092142032

D6 = 2.63092142032( 1+ 0.16) = 3.10448727597

Value of Stock =

where r = 0.15

G = 0.07

=

= **$25.51**

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****show step****

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