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11 December, 17:46

Could I Industries just paid a dividend of $1.62 per share. The dividends are expected to grow at a rate of 20 percent for the next four years and then level off to a growth rate of 4 percent indefinitely. If the required return is 12 percent, what is the value of the stock today

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  1. 11 December, 19:05
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    Using the dividend growth model = Do (1+g) / Ke-g

    Do=1.62$

    G=4%

    Ke=12%

    Do (1+g) / Ke-g = 2.0736 (1+4%) / 12%-4%

    = 1.6848

    /8%

    = 53.916

    Year Year Year Year Year

    0 1 2 3 4

    20% 20% 20% 20%

    Dividend 1 1.2 1.44 1.728 2.0736

    Ifninty dividend 55.91*

    Total Cashflows 1 1.2 1.44 1.728 55.98

    Pres. Val @12% 1 1.07142 1.14795 1.22995 35.583

    Value of stock 40.030
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