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Calculate Kirkland Motors expected stock price five years from now

Kirkland Motors expects to pay a $2.00 a share dividend on its common stock at the end of the year (i.e., D1 = $2.00). The stock currently sells for $20.00 a share.

The required rate of return on the company's stock is 12 percent (i.e., rs = 0.12). The dividend is expected to grow at some constant rate over time. What is the expected stock price five years from now?

Solution Summary

The answer is shown together with the formula for calculation.

$2.19