Stock Price Valuation: ABC Company
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ABC Company has the following data:
Current stock price = $10
Last Dividend paid = $0.5
Required rate of return = 10 %
Assume that dividend is expected to grow at a constant rate, g, in the future.
Assume that the company has a strong financial conditions and it is classified with low risk.
Assume rs is expected to remain at 10%, after 5 years from now.
Find the stock price for ABC Company?
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The solution goes into a great amount of detail related to the stock price valuation question being asked. The solution is very easy to follow along and can be easily understood by anyone with a basic understanding of the concepts. The solution answers all the question(s) being asked in a succinct way. Overall, an excellent response.
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First we need to determine the growth rate:
10 = .5(1+g)/(.1-g)
=> 1 - 10g = .5 + 0.5g
=> 10.5g = 0.5
=> g = 4.76%
Now in order to ...
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