Constant-growth dividend discount model: Using the following data provided, calc
ID: 1172514 • Letter: C
Question
Constant-growth dividend discount model: Using the following data provided, calculate the current price of these stocks assuming an investor required rate of return of 11%.
Company
Current year’s dividend
Dividend growth rate
Current price
Cabo Technology
$0.85
5.0%
Cellular Systems
$3.00
3.0%
Candida Consultants
$5.00
9.0%
Coliseum Theaters
$12.50
10.0%
USE EXCEL AND SHOW ALL WORK
Company
Current year’s dividend
Dividend growth rate
Current price
Cabo Technology
$0.85
5.0%
Cellular Systems
$3.00
3.0%
Candida Consultants
$5.00
9.0%
Coliseum Theaters
$12.50
10.0%
Explanation / Answer
Company
Current year’s dividend
Dividend growth rate
Current price
Cabo Technology
$0.85
5%
$1.49
Cellular Systems
$3.00
3%
$38.63
Candida Consultants
$5.00
9%
$272.50
Coliseum Theaters
$12.50
10%
$1,375
Under Constant-growth dividend discount model,
Current price = D0 (1 + g) / Ke – g
Cabo Technology
= ( $0.85 x 1.05 ) / ( 0.11 – 0.05)
= $0.89 / 0.06
= $1.49
Cellular Systems
= ( $3.00 x 1.03 ) / ( 0.11 – 0.03)
= $3.09 / 0.08
= $38.63
Candida Consultants
= ( $5.00 x 1.09 ) / ( 0.11 – 0.09)
= $5.45 / 0.02
= $272.50
Coliseum Theaters
= ( $12.50 x 1.10 ) / ( 0.11 – 0.10)
= $13.75 / 0.01
= $1,375
Company
Current year’s dividend
Dividend growth rate
Current price
Cabo Technology
$0.85
5%
$1.49
Cellular Systems
$3.00
3%
$38.63
Candida Consultants
$5.00
9%
$272.50
Coliseum Theaters
$12.50
10%
$1,375
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.