Question

Financial analysts forecast L Brands (LB) growth for the future to be 13.2 percent. LB's most recent dividend was $2.10. What is the fair present value of L Brands's stock if the required rate of return is 16.2 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g. 32.16))

Answer 1

Dividend = $2.10
Growth rate = 13.2%
Required rate of return = 16.2%
Using Dividend Discount Model
Share price = (Dividend * (1 + Growth rate)) / (Required rate of return - Growth rate)
Share price = (2.10 * (1 + 13.2%)) / (16.2% - 13.2%)
Share price = 2.3772 / 0.03
Share price = $79.24
Present value of L brand stock is $79.24