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    What price should the stock of ABC company be selling for today?

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    One year ago ABC Company paid a $4.00 dividend, and, during the current year, it has experienced a 10 percent growth rate. Due to a new, advance production technique, ABC expects to achieve a dramatic increase in its short-run growth rate -- 25 percent annually for the next 3 years. After this time, growth is expected to return to the long-run constant rate of 10 percent, and investors require a 15 percent rate of return.

    At what price should the stock of ABC Company be selling for today? Assume that a dividend of $4.40 has just been paid, i.e., that D0=$4.40.

    P0 = D1 + D2 + D3 + D4 + Dn + 1
    _______ _________ __________ _________ __________
    (1 + Ke) (1 + Ke)^2 (1 + Ke)^3 (1 + Ke)^4 Ke - Gc

    = $4.40(1.10) + $4.85(1.25) + $6.05(1.25) + $7.56(1.25) + $9.45 (1.10)
    __________ __________ ___________ ___________ ____________
    (1.15) (1.15)^2 (1.15)^3 (1.15)^4 .15 - .10

    = $4.20 + $4.57 + $4.97 + $5.40 + $2.08

    PV = $21.22 Answer ?????

    Dividends Payout: ?????
    D-1 =$4.00 , D0 = $4.40, D1 = $4.84, D2 = $6.05, D3 = $7.56, D4 = $9.45.

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    https://brainmass.com/business/discounted-cash-flows-model/price-stock-abc-company-selling-today-84545

    Solution Preview

    Hello!
    We have that a dividend of $4.40 (10% higher than the initial dividend of $4.00, representing the 10% growth in the past year) has just been paid. The next dividend will happen one year from now, and it will be 25% higher: 4.40*1.25 = $5.50. This growth ...

    Solution Summary

    You will find the answer to this puzzling assignment inside...

    $2.19

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