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    Stock valuation - dividend growth model

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    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?

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    Solution Preview

    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 ...

    Solution Summary

    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.