Question

Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to grow at a constant rate of 2% per year. If investors require a 12% return on equity, what is the current price of Hubbard's common stock?

Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.30 at the end of each year. If investors require an 6% return on the preferred stock, what is the price of the firm's perpetual preferred stock?

Assume today is December 31, 2013. Imagine Works Inc. just paid a dividend of $1.30 per share at the end of 2013. The dividend is expected to grow at 18% per year for 3 years, after which time it is expected to grow at a constant rate of 6% annually. The company's cost of equity (rs) is 9%. Using the dividend growth model (allowing for nonconstant growth), what should be the price of the company's stock today (December 31, 2013)?

Answer 1

Hubbard stock value = Dividend next period/(required return - growth rate)
=1.20*1.02/(0.12-0.02)
=$12.24

Carlysle
Preferred value = Cash flow/required return
=1.30/0.06
=$21.67

Year	Div
1	$    1.534		$    1.534	0.917431	$    1.407
2	$    1.810		$    1.810	0.84168	$    1.524
3	$    2.136	$ 75.470	$ 77.606	0.772183	$ 59.926
4	$    2.264		$    2.264
				Share price0	$    62.86