Company ABC's earnings and dividends will grow at 0.5% monthly during the next five years.
Its growth will stop after year 5. In year 6 and afterward, it will pay out all earnings as dividends. Assume next year's EPS is $10 and the dividend is $5 and the market capitalization rate is 9%. What is ABC's stock price?
Growth of 0.5% monthly means =(1+0.5%)^12-1=0.061678 = 6.17% annually
The value of stock will be the present value of ...
This problem values a stock using current dividend, dividend growth rate, etc. It uses the dividend discount method to calculate the value of the stock of the firm.