1) ABC Corp is expected to pay a dividend of $7.00 next year. Due to strong...

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Question

Answer 1

Answer #1

	Required rate=	10.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	7		7	1.1	6.3636
2	7	50.00%	10.5		10.5	1.21	8.67769
3	10.5	30.00%	13.65	200.85	214.5	1.331	161.15702
	Long term growth rate (given)=	3.00%			*Value of Stock =*	*Sum of discounted value =*	176.2

Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Unless dividend for the year provided
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 3 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

Answer 2

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