Question

. The last dividend paid by Wilden Corporation was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price? Answer: 37.05

Answer 1

	Required rate=	12.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	1.55	1.50%	1.57325		1.57325	1.12	1.4047
2	1.57325	1.50%	1.59684875	43.115	44.71184875	1.2544	35.64401
	Long term growth rate (given)=	8.00%			Value of Stock =	Sum of discounted value =	37.05

Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 2 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor