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# STOCK VALUATION TODAY AND IN THE FUTURE

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Assume that a corporation is a constant growth company whose last dividend (D0, which was paid yesterday) was \$2.00 and whose dividend is expected to grow indefinitely at a 6% rate. The discount rate is 13%. What is the firm's expected dividend stream over the next 3 years?
What is the firm's current stock price?
What is the stock's expected value one year from now?
Now assume that the stock is currently selling at \$30.29. What is its expected rate of return?
Now assume that corporation's dividend is expected to experience supernormal growth of 30% from Year 0 to Year 1, 20% from Year 1 to Year 2, and 10% from Year 2 to Year 3. After Year 3, dividends will grow at a constant rate of 6%. What is the stock's intrinsic value under these conditions?
What are the expected dividend yield and capital gains yield during the first year?

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#### Solution Preview

Stock Valuation:

Dividend values in succeeding years; current stock value; calculate expected rate of return; stock value with constant growth; stock value with non-constant growth; dividend yield rate; capital gain yield rate

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Stock Valuation - Dividends, Capital Gains, Expected Rate of Return
Assume that a corporation is a constant growth company whose last dividend (D0, which was paid yesterday) was \$2.00 and whose dividend is expected to grow indefinitely at a 6% rate. The discount ...

#### Solution Summary

Assume that a corporation is a constant growth company whose last dividend (D0, which was paid yesterday) was \$2.00 and whose dividend is expected to grow indefinitely at a 6% rate. The discount rate is 13%. What is the firm's expected dividend stream over the next 3 years?
What is the firm's current stock price?
What is the stock's expected value one year from now?
Now assume that the stock is currently selling at \$30.29. What is its expected rate of return?
Now assume that corporation's dividend is expected to experience supernormal growth of 30% from Year 0 to Year 1, 20% from Year 1 to Year 2, and 10% from Year 2 to Year 3. After Year 3, dividends will grow at a constant rate of 6%. What is the stock's intrinsic value under these conditions?
What are the expected dividend yield and capital gains yield during the first year?

\$2.19