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What is the firm's expected stock price in five years using the dividend growth model?

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Medical Corporation of America (MCA) has a current stock price of $36, and its last dividend (D0) was $2.40. In view of MCA's strong financial position, its required rate of return is 12 percent. If MCA's dividends are expected to grow at a constant rate in the future, what is the firm's expected stock price in five years?

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Solution Summary

This solution describes the steps to calculate expected stock's price in five years in plain text and in the attached Excel file.

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Please refer attached file for better clarity of formulas.

Solution:

Current price=Po=$36
Required rate of return=12%
Let ...

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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