Question

Tesla, Inc., is growing rapidly and now you need to estimate the value of its common stock. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. Required return is 11 percent, and the company just paid a dividend of $5.50   

	Year 0	Year 1	Year 2	Year 3	Year 4
Dividends
Terminal Value
PV of CFs

  

Question 1
Terminal Value
Question 2
Current Share Price

       

Answer 1

Symbol G1 Given Growth Rate (G) 1st Year 2nd Year 3rd Year Thereafter Rate 30% 30% 30% G2 6% DO (Current Dividend) R (Discount Rate) Solution 1 & 2 Particulars Dividend Terminal Value PVE PV of CFS Year 0 Year 1 Year 2 Year 3 Year 4 Total 5.5 7.15 9.295 12.084 256.17 0.9009 0.8116 0.7312 0.6587|| | 6.4414 7.544| 8.8354| 168.75|191.57| Terminal Value PVF Current Price where, [D3 X (1+g)]/[r-g] (1/(1+r)^n Sum of PV of future cash flow (here from year 1 to year 4) D3 = Dividend for 3rd year = growth = cost of capital Hence, Terminal Value is $ 256.17 Hence, Current Share Price is $ 191.57