Suppose Company B is currently paying a cash dividend of $3 per share. Investors require a...

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Suppose Company B is currently paying a cash dividend of $3 per share. Investors require a 14% return. If the dividend is exp

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Answer 1

Answer #1

Current Dividend: $ 3 per share

Growth Rate: 9% & Required rate of return: 14%

Dividend after 7 year from now : $ 3 ( 1 + 0.09)⁷

Dividend after 7 year from now : $ 5.484

Hence,

Price after 7 year from now : $ Dividend after 7 year ( 1+ growth rate) / (required rate - growth rate)

Price after 7 year from now : $ 5.484 ( 1+0.09) / (0.14 - 0.09)

Price after 7 year from now : $ 119.55

_______________________________END___________________________________

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In case of any doubt, please do comment. I will consider myself fortunate if I can help you.

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Predicted stock price after 7 year from now is $ 119.55

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Answer 2

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