Stock value

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Suppose a company paid $4.70 per share as a dividend on last Friday. The investors expect the dividend to grow at a constant rate of 6%(g) per year,and their required rate of return(Ks) is 14%

a) Calculate the expected dividends for each of the next 5 years

b) Calculate the intrinsic value (Po) of the stock

c) Do the same as in part b above, but suppose the stock's dividend will not grow at all ( g equals to zero)

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Solution Preview

a) Calculate the expected dividends for each of the next 5 years

Year Dividend
0 $4.70
1 $4.98 =(1+6%) x 4.7
2 $5.28 =(1+6%) x 4.98
3 $5.60 =(1+6%) x ...

Solution Summary

The expert calculates stock values when the dividends and grow and when the dividends do not grow.

$2.19