Campbell Supper Co. paid a $0.772 dividend per share in 2013, which grew to $0.97 in 2016. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required return is 9.4 percent?
Dividend in 2013 = $0.772
Dividend in 2016 = $0.97
Dividend in 2013 * (1 + Growth Rate)^3 = Dividend in 2016
$0.772 * (1 + Growth Rate)^3 = $0.97
(1 + Growth Rate)^3 = 1.25648
1 + Growth Rate = 1.0791
Growth Rate = 0.0791 or 7.91%
Dividend in 2017 = Dividend in 2016 * (1 + Growth Rate)
Dividend in 2017 = $0.97 * 1.0791
Dividend in 2017 = $1.0467
Price at the beginning of 2017 = Dividend in 2017 / (Required
Return - Growth Rate)
Price at the beginning of 2017 = $1.0467 / (0.0940 - 0.0791)
Price at the beginning of 2017 = $1.0467 / 0.0149
Price at the beginning of 2017 = $70.25
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