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 | |||

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****show step****

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