A stock just paid a dividend of $1.27. The dividend is expected to grow at 23.94% for five years and then grow at 4.73% thereafter. The required return on the stock is 10.65%. What is the value of the stock? Submit Answer format: Currency: Round to: 2 decimal places
A stock just paid a dividend of $1.27. The dividend is expected to grow at 23.94% for five years and then grow at 4.73% thereafter. The required return on the stock is 10.65%. What is the value of the stock? Submit Answer format: Currency: Round to: 2 decimal places
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:# 4 O
A stock just paid a dividend of $1.27. The dividend is
expected to grow at 23.94% for five years and then
grow at 4.73% thereafter. The required return on the
stock is 10.65%. What is the value of the stock?
Submit
Answer format: Currency: Round to: 2 decimal places.
unanswered
not_submitted
Attempts Remaining: Infinity
Transcribed Image Text:B
D
E
F
G
H
1 DO
2 Growth rate 1-5
3 Growth rate after 5
$2.31
25.18%
4.79%
4 Ke
14.43%
5
Year
1
3.
6.
7 Expected Dividend
8 PV factor
9 Ke-g
10 Discounted Dividend
$2.891658 $3.6197774844 S4.5312374550 S5.6722030461 $7.1004637732 $7.4405759879
1.9620021985
0.0964
$2.5270103994 $2.7644076011 $3.0241068208 $3.3082031970 $3.6189886935 $39.3396084223
$2.31
1.1443
1.30942249
1.4983721553
1.7145872573
1.9620021985
11 Value of stock
$54,58
Formula snip:
D
E
F
G
H
1 DO
2 Growth rate 1-5
2.31
0.2518
3 Growth rate after 5
0.0479
4 Ke
0.1443
Year
4
=E7*(1+B2)
=(1+14.43%)^1 =(1+14.43%)^2 =(1+14.43%)^3 =(1+14.43%)^4 =(1+14.43%)^5 =(1+14.43%)^5
1
15
|=F7*(1+B2)
6
=G7*(1+B3)
6
7 Expected Dividend
8 PV factor
9 Ke-g
10 Discounted Dividend
11 Value of stock
|=B1
|=B7*(1+B2)
=C7*(1+B2)
|=D7*(1+B2)
=14.43%-4.79%
|=H7/(H8*H9)
=C7/C8
=D7/D8
=E7/E8
=F7/F8
=G7/G8
|=SUM(C10:H10)
Hence, value of stock is $54.58.
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