Suppose the dividend today, D0, is $2.50, and the growth rate (g) is expected to be 25% for the next three years, followed by a normal growth rate (g) of 6% thereafter. Assume the investors require 13%, rs. Calculate the value of the stock today, P0. This is the supernormal growth problem.
USE appropriate symbols for each answer, that is, $ and %, when necessary.
Hi Lo Stock Sym Div Yld PE Vol Close Net Chg
22 16.50 A-gate ATG 1.08 ? 13 564 18.75 -.25
What is the annual dividend per share?
What did this stock close at yesterday?
Calculate the dividend yield.
How many shares were traded?
What did the stock close at the day before yesterday? Calculate the earnings per share.
Please see the attached file.
From year 4 onwards, the dividends would be growing at 6% per year indefinitely. This is a growing perpetuity, the present value of this is
given as Dividend/(ke-g)
Ke = cost of equity=13%, g= growth
PV in Year ...
The solution calculates the value of the stock today summing investors require 13%. The annual dividend per share is given.