Question

g A stock just paid a dividend of $2.59. The dividend is expected to grow at 20.07% for two years and then grow at 4.44% thereafter. The required return on the stock is 11.20%. What is the value of the stock?

Answer 1

Answer:

52.43

Explanation:

2.59 x (1.2007) = 3.11

Present value = 3.11 / 1.1120 = 2.80

2.59 x (1.2007²) = 3.73

Present value = 3.73 / 1.1120² = 3.02

3.73 (1.0444) / (0.1120 - 0.0444) = 57.63

Present value = 57.63 / 1.1120² = 46.61

Value of the stock = 2.80 + 3.02 + 46.61 = 52.43