Question

A stock just paid a dividend of $1.07. The dividend is expected to grow at 23.95% for three years and then grow at 3.96% thereafter. The required return on the stock is 11.05%. What is the value of the stock?

**Answer format:** Currency: Round to: 2
decimal places.

Answer #1

Year | Dividend | Discounting Factor | Discounting Factor | Present Value | |||

1 | 1.3263 | =1.07*(1+23.95%) | =1/(1+11.05%)^1 | 0.900495 | 1.194295 | ||

2 | 1.6439 | =1.07*(1+23.95%)^2 | =1/(1+11.05%)^2 | 0.810892 | 1.333029 | ||

3 | 2.0376 | =1.07*(1+23.95%)^3 | =1/(1+11.05%)^3 | 0.730204 | 1.487879 | ||

4 | 2.1183 | =2.0376*(1+3.96%) | =1/(1+11.05%)^4 | 0.657545 | 1.392871 | ||

5 | 2.2022 | =2.1183*(1+3.96%) | =1/(1+11.05%)^5 | 0.592117 | 1.30395 | ||

Total | 6.712025 | ||||||

Sum of Present Value | 6.712025 | ||||||

Continuing Value | =1.30395*(1+3.96%)/(11.05%-3.96%) | ||||||

19.1197 | |||||||

Value of Stock | 25.8317 | ||||||

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