Question

Could I Industries just paid a dividend of $1.82 per share. The dividends are expected to grow at a 16 percent rate for the next 4 years and then level off to a 4 percent growth rate indefinitely. If the required return is 15 percent, what is the value of the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Price $______

Answer 1

Dividend
D0		1.82
D 1	1.82+16%	2.11
D2	2.11+16%	2.45
D3	2.45+16%	2.84
D4	2.84+16%	3.3
D5	3.3+4%	3.43
Horizon value at Year-4 = 3.43 / (15-4)% = 31.18
Stock Price:
Year	Cashflows	PVF at 15%	Present value
1	2.11	0.8695652	1.834783
2	2.45	0.7561437	1.852552
3	2.84	0.6575162	1.867346
4	3.3	0.5717532	1.886786
4	31.18	0.5717532	17.82727
Stock Price:			25.27