Question

Can you please show the steps of how to solve (in excel preferred) please, thank you!

Common stock value-Variable growth Lawrence Industries' most recent annual dividend was $1.82 per share (Do = $1.82), and the firm's required return is 12%. Find the market value of Lawrence's shares when dividends are expected to grow at 8% annually for 3 years, followed by a 4% constant annual growth rate in years 4 to infinity

Answer 1

Year	0	1	2	3	4	Terminal year	4
Dividend	$       1.82	$       1.97	$       2.12	$       2.29	$       2.38	Price at year 3	$    29.80
PV of dividend		$       1.76	$       1.69	$       1.63	$    21.21	PV of terminal price	$    21.21
P0	$    26.29

Year 4 is terminal year as growth is constant after year 3

D1 = 1.82*1.08 = $1.97

D2 = 1.97*1.08 = $2.12

D3 = 2.12*1.08 = $2.29

D4 = 2.29*1.04 = $2.38

P3 = D4/(Ke-g)

PV of P3 = P3/1.12^3

and of dividend is calculated using D/1.12^t

So, current market value of Lawrence's share = sum of all present values = $26.29