Question

Could I Industries just paid a dividend of $1.62 per share. The dividends are expected to grow at a rate of 20 percent for the next four years and then level off to a growth rate of 4 percent indefinitely. If the required return is 12 percent, what is the value of the stock today

Answer 1

Step-by-step explanation:

Using the dividend growth model = Do(1+g)/Ke-g

Do=1.62$

G=4%

Ke=12%

Do(1+g)/Ke-g = 2.0736(1+4%)/12%-4%

= 1.6848

/8%

= 53.916

Year Year Year Year Year

0 1 2 3 4

20% 20% 20% 20%

Dividend 1 1.2 1.44 1.728 2.0736

Ifninty dividend 55.91*

Total Cashflows 1 1.2 1.44 1.728 55.98

Pres.Val @12% 1 1.07142 1.14795 1.22995 35.583

Value of stock 40.030