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Estimating the Current Value of a Given Stock

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Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value?

a. $41.59
b. $42.65
c. $43.75
d. $44.87
e. $45.99

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Solution Summary

Solution describes the steps to estimate the current value of the given stock. Calculations and answer are provided.

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Required rate of return=r=9%

Current dividend=Do=$1.32
Expected dividend after 1 year=D1=1.32*(1+30%)=$1.716
Expected dividend after ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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