Question

ABC Inc. just announced it is increasing its annual dividend to $2.00 next year and establishing...

ABC Inc. just announced it is increasing its annual dividend to $2.00 next year and establishing a policy whereby the dividend will increase by 2 percent annually thereafter.
(1) What will the dividend be 5 years from now?
(2) How much will one share of this stock be worth 10 years from now if the required rate of return is 7 percent?

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Answer #1

D5 = 2 (1+0.02)^5

= 2 * 1.1040808032

  = 2.2081616064

D10 = 2 (1+0.02)^10

= 2 * 1.21899441997

= 2.43798883994

Value of Stock =

=

= 2.48674861673 / 0.05

= 49.73

Value of Stock after 10 year will be = $ 49.73

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