Over the past 5 years, NBA's common stock earnings per share have grown from $0.62 to...
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Over the past 5 years, NBA's common stock earnings per share have grown from $0.62 to $0.91. If an investor is NBA stock is assumed to have a required rate of return of 14%, what is the estimated value of NBA if its current dividend is $0.12? Assume dividends will continue to grow at a rate similar to that of EPS.
A. $2.16
B. $1.62
C. $4.94
D. $2.00
Homework Answers
FV = PV (1+g)^n
0.91 = 0.62 ( 1 + g)^5
(1+g)^5 = 0.91 / 0.62
= 1.4677
1+g = 1.4677^(1/5)
= 1.0798
g =1.0798 - 1
= 0.0798 i.e 7.98%
P0 = D0(1+g) / [ Ke - g ]
= $ 0.12 ( 1 + 0.0798 ) / [ 14% - 7.98% ]
= 0.12 * 1.0798 / [ 6.02% ]
= 0.1296 / 6.02%
= 2.16
OPtion A is correct.
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