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Computing dividends, expected return and stock price

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A company will pay $2 dividends next year. These dividends are expected to grow at a rate of 15% for four years. Afterward, the long term growth rate is expected to settle at 4%. The published beta for the stock is 1.2, the expected rate of return on the market is 13% and the current risk free rate is 3%.

1) Calculate the company's dividends to from year 1 to year 5?
2) MVI's beta is 1.6, the expected return on the market is currently 12.75 percent, and the risk free rate is 4%? What should be the company's required return?
3) Calculate the company's stock price at the end of year 4 as the constant growth period begins.
4) Calculate the company's stock price today.

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Solution Summary

This solution provides assistance in computing dividends, expected returns and stock price.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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