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Stock Price and Dividend Problem: Texas Corporation

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Texas Corporation stock pays a dividend on every July 15. In 2008: the dividend is $3.00, in 2009 $3.25, in 2010 $3.50, and in 2011 and all the subsequent years it will be $4.00. The shareholders of Texas require a return of 13% on their investment. Find the price of this stock on July 16, 2008, just after it has paid its dividend. What is its price on July 14, 2010, just before it pays its dividend? Please show all calculations.

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Solution Summary

This solution illustrates how to use the Discounted Cash flow and Gordon Dividend Growth models to determine the price of a stock at different dates.

Solution Preview

Please see the attached Excel 97-2003 spreadsheet for full solution.

Find the price of this stock on July 16, 2008, just after it has paid its dividend.

Discounted
Date Amount Amount
15/07/09 ...

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