Assuming a return on stocks of 13%, what is the value of a company that pays...
Assuming a return on stocks of 13%, what is the value of a company that pays a current dividend of $3.20 and will grow at 6% for 2 years and then 4% forever? PLEASE TYPE YOUR ANSWER
Homework Answers
D1=(3.2*1.06)=3.392
D2=(3.392*1.06)=3.59552
Value after year 2=(D2*Growth rate)/(Required return-Growth rate)
=(3.59552*1.04)/(0.13-0.04)
=41.5482311
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=3.392/1.13+3.59552/1.13^2+41.5482311/1.13^2
=$38.36(Approx).
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