Question

Antonius and Cleo, LLC just paid an annual dividend of $1.26 last month. The required return is 14.6 percent and the growth rate is 3.1 percent. What is the expected value of this stock 11 years from now?

Cerberus Undertakers, Inc. just paid an annual dividend of $1.34 and is expected to pay annual dividends of $1.96 and $2.56 per share the next two years, respectively. After that, the firm expects to maintain a constant dividend growth rate of 5.7 percent per year. What is the value of this stock today if the required return is 14.3 percent?

Answer 1

Antonius and Cleo
Dividend after 1 year = D₁*( 1+ growth) = 1.26 * ( 1+ 3.1%) = 1.29906
Current value of stock = D₁/(Required return - Growth) = 1.29906/( 14.6% - 3.1%) = 11.296
Price of stock after 11years = D₁₂/(Required return - Growth) = 1.26 *(1+3.1%)¹² /(14.6%-3.1%) = 15.804

Cerberus Undertakers
Dividend after Year 1 (D₁) = 1.96 , dividend adter year 2( D₂) = 2.56
Dividend in Year 3 ( D3) = D₂ * (1+growth rate ) = 2.56 * ( 1+ 5.7% ) = 2.70592
Required Rate (r) = 14.3%
Value of Stock = D₁/(1+r) + D₂/(1+r)² + D₃/(r-g) * ( 1/(1+r)²) = 1.96/(1+14.3%) + 2.56/(1+14.3%)² + 2.70592/(14.3% - 5.7%) * 1/(1+14.3%)² = 27.76

Best of Luck. God Bless