Question

A stock just paid a dividend of $1.10. The dividend is expected to grow at 27.82%...

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

Homework Answers

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
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