Case #4 Valuing Stock The dividend has grown from $1.00 per share on November 13

Question

Case #4 Valuing Stock  

The dividend has grown from $1.00 per share on November 13, 2012 to $2.80 during 2018. You think this growth rate will continue for three more years and then fall to the long-term growth rate of 9.29 percent predicted by analysts. Discount rate is 13 percent.

Given these parameters, the company’s stock is worth____________ per share.

I'm still learning finance, may i have step-by-step how to slove these four case, it will be very greatful if you could help me on this, Thank you.

Explanation / Answer

growth rate per annum = (2.80/1)^1/6 - 1 = 18.7207%

dividend next year = 2.80*1.187207

dividend after 2 years = 2.80*1.187207^2

dividend after 3 years = 2.80*1.187207^3

terminal value = 2.80*1.187207^3*1.0929/(0.13 - 0.0929)

stock worth = 104.93

Discount rate 13.0000% Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow                              -   0                                            -                                           -                         3.324 1                                        2.94                                    2.94                       3.946 2                                        3.09                                    6.03                       4.685 3                                        3.25                                    9.28                  138.021 3                                     95.66                                104.93

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