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Amazon plans to pay dividends $4, $5 and $6 over the next three years respectively. After...

Amazon plans to pay dividends $4, $5 and $6 over the next three years respectively. After three years, dividends are expected to grow perpetually at a 10% rate. What is the value of the stock if investors require a 16% return to purchase the stock?

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Answer #1

Dividend to pay in year 1(D1) =$4

Dividend to pay in year 2 (D2) =$5

Dividend to pay in year 3 (D3) =$6

Dividend growth rate therafter (g) = 10% per year in perpetuity

Required rtae of Return(Ke) = 16%

Calculating the Current Value of Stock:-

P0 = $3.4483 + $3.7158 + $3.8439 + $70.4723

P0 = $81.48

So, Value of Stock is $81.48

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