Could I Industries just paid a dividend of $1.92 per share. The dividends are expected to grow at a rate of 19 percent for the next three years and then level off to a growth rate of 6 percent indefinitely. If the required return is 11 percent, what is the value of the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Last Dividend, D0 = $1.92
Growth rate for next 3 years is 19%, followed by a constant growth rate (g) of 6%
D1 = $1.9200 * 1.19 = $2.2848
D2 = $2.2848 * 1.19 = $2.7189
D3 = $2.7189 * 1.19 = $3.2355
D4 = $3.2355 * 1.06 = $3.4296
Required return, r = 11%
P3 = D4 / (r - g)
P3 = $3.4296 / (0.11 - 0.06)
P3 = $3.4296 / 0.05
P3 = $68.592
P0 = $2.2848/1.11 + $2.7189/1.11^2 + $3.2355/1.11^3 +
$68.592/1.11^3
P0 = $56.78
Value of stock today is $56.78
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