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Expected Stock Price with Growth

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Constant growth stock valuation Fletcher Company's current stock price is $ 36, its last dividend was $ 2.40, and its required rate of return is 12 percent. If dividends are expected to grow at a constant rate, g, in the future, and if rs is expected to remain at 12 percent, what is Fletcher's expected stock price 5 years from now?

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Solution Summary

This solution shows step-by-step calculations to determine the dividend and stock price 5 years from now.

Solution Preview

P0 = 36
D0 = 2.40
Rs = 12%

Since the DDM formula is
P0 = D0*(1+g)/(Rs-g)
or
36 = ...

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