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Finance Dividend discount model and growth rate

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Assume that XYZ has Earnings Per share of $1.79 with a .68 cent dividend and return on equity of 24%. If the stock price is $49.22 then:
1. Use the dividend discount model to estimate the return for XYZ
2. Estimate the present value of the growth opportunity.

You can use Excel or do long hand.

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Solution Summary

This solution explains how to find the growth rate and required rate of return of a company when earnings per share, dividend and ROE are given.

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Dear Student:

The quickest way to do the calculation is by hand. First analyze the information given:

EPS = $1.79 (Earnings per Share)
Dividend Payment D0 = $0.68 (assuming that this is the last dividend paid; the problem does not state clearly if the dividend is the last dividend paid or the expected next dividend to be paid)
ROE = 24% (Return on Equity)
Current Stock Price P0 = $49.22

Q1. Dividend ...

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