Example 4: Given that the annual dividend that Ford just paid was $2.00 and we expect...

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Example 4: Given that the annual dividend that Ford just paid was $2.00 and we expect Fords dividends to increase 4.00% ever

Answer 1

Answer #1

Using Constant Growth Model,

Stock Price = 2(1.04)/(0.12 - 0.04)

Stock Price = $26.00

Dividend in Year 9 = 2(1.04)^9

Dividend in Year 9 = $2.85

Stock Price in year 12= 2(1.04)¹³/(0.12 - 0.04)

Stock Price in year 12 = $41.63

Answer 2

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