Question

A stock just paid a dividend of $1.10. The dividend is expected to grow at 27.82% for five years and then grow at 3.56% thereafter. The required return on the stock is 11.74%. What is the value of the stock?

round to 2 decimal places

Answer 1

Year	t	Cash Flow					Discounting Factor [1/(1.1174^t)]	PV of Cash Flow (cash flow*discounting factor)
1	1	1.1	+	27.82%	=	1.40602	0.89493467	1.258296044
2	2	1.406	+	27.82%	=	1.797174764	0.800908063	1.439371759
3	3	1.7972	+	27.82%	=	2.297148783	0.716760393	1.646505265
4	4	2.2971	+	27.82%	=	2.936215575	0.641453726	1.88344642
5	5	2.9362	+	27.82%	=	3.753070748	0.574059178	2.154484709
5	5	Terminal Value= [(1.3671875+3.56%)/(11.74%-3.56%)]				47.51442624	0.574059178	27.27609248
						Expected Share Price today =sum of PVs		35.65819667 = $35.66