Question

you are planning on investing your income tax refund in common stock, and you have identified a stock that looks pretty good. Over the last few years, this stock has paid the following dividends per share

Year       dividend per share

2xx1       2.00

2xx2       1.95

2xx3       2.25

2xx4       2.10

2xx5       2.45

2xxx6      2.8

You feel that the company should manage to keep up this average growth rate of dividends even though there might be a some fluctuation form year to year to year. You feel that due to the riskiness of this investment, the discount rate should be 14% based on your estimates, what would be a fair price for this stock?

You are planning on investing your income tax refund in common stock, and you have identified a stock that looks pretty good. Over the last few years, this stock has paid the following dividends per share YEAR 2xx1 2xx2 2xx3 2xx4 2xx5 2xx6 DIVIDEND PER SHARE $2.00 1.95 2.25 2.10 2.45 2.80 You feel that the company should manage to keep up this average growth rate of dividends even though there might be a some fluctuation from year to year. You feel that due to the riskiness of this investment, the discount rate should be 14%. Based on your estimates, what would be a fair price for this stock?

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

- 2x Σ AutoSum : A Insert Delete Format Fill 2 Clear Sort & Filter Editing Find & Select Cells DL DM DN DO 5 ke - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste B I U B- SF A Merge Merge & Center - Center Format Painter $ -% % 4:0 .00 . Conditional Format Cell Formatting as Table Styles Clipboard Font Alignment Number Styles DG462 Fax DE DE DG DH DI DK 462 463 464 PV = 2XX1 DIVIDEND 2. 465 FV = 2XX6 DIVIDEND 2.8 466 n = 467 468 6.9610% (=RATE(D1466,,-D1464,D1465)] 469 470 ke = 14.00% 471 472 D1 = DO*(1+g) = 2.9949 [2.8*(1+0.069610)] 473 474 ANSWER PO = D1/(ke-g) = 42.55 [2.9949/(0.15-0.069610)] 475 476 477 478 479 HE Rea N convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean YIELD bond portfolio KE CAPM UTILITY, SHARPE, beta ferences: GX37 cap stru WACC BOI 140% RESI el 70-_+ ELEB * ENG 31-10-2019