Finance: Estimate the Stock's Current Price Given Dividend Growth
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A company currently pays dividend of $2 per share, Do=$2. It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years; then the dividend will grow at a constant rate of 7% thereafter. The company's stock has a beta equal 1.2, the risk-free is 7.5%, and the market premium is 4%.
Question:
What is your estimate of the stock's current price?
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Solution Summary
This solution provides a step by step response which illustrates how to solve for the current price of the company in question's stock. This solution also includes an Excel attachment file which shows the methods taken in order to derive the correct numerical values.
Solution Preview
** Please see the attached file for an Excel formatted copy of the solution response **
Beta - 1.2
Risk free Rate - 7.50%
Risk Premium - 4%
Cost of Capital - 12.30%
Current Dividend (Do) - $2.00
Growth rate ...
Education
- Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
- Bachelor of Commerce, West Bengal University
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