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Calculating the maximum offer price

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Evaluate the stock that paid a dividend of $4.25 last year and is currently selling for $36 per share. If your company decides to buy the stock, the stock will be held for 5 years and then sold. The growth rate on the stock is a constant at 3% per year and your company's required return on the stock would be 11%. What's the maximum price per share that your company should pay for stock? Show work.

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Solution Summary

This solution depicts the steps to estimate the fair value of stock.

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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