Question

Waller Co. paid a $0.152 dividend per share in 2000, which grew to $0.330 in 2012. This growth is expected to continue.

What is the value of this stock at the beginning of 2013 when the required return is 15.2 percent? (Round the growth rate, g, to 4 decimal places. Round your final answer to 2 decimal places.)

Answer 1

Compounded annual growth rate of divdend = ( ending value / beginning value)^1/12 - 1

Compounded annual growth rate of divdend = ( 0.330 / 0.152)^1/12 - 1

Compounded annual growth rate of divdend = 1.066733 - 1

Compounded annual growth rate of divdend = 0.066733 or 6.6733%

Stock at the beginning of 2013 = D1 / k - g

Stock at the beginning of 2013 = [0.33 ( 1 + 0.06733) / 0.152 - 0.06733]

Stock at the beginning of 2013 = 0.352219 / 0.08467

Stock at the beginning of 2013 = $4.16