Compute the value of a stock using the information below: Dividend per share: $0

Question

Compute the value of a stock using the information below: Dividend per share: $0.50, Today Dividends are expected to constantly grow at 4% forever Your required rate of return is 6% How much would you pay for this stock? Price Dividend, a year from now Rate of return Growth rate for dividends Dividend per share: $0.50, Today Dividends are not expected to grow, ever! Your required rate of return is 6% Now, how much would you pay for this stock? Price Dividend, a year from now Rate of return Growth rate for dividends Compute the value of a stock using the information below: Dividend per share: $0.50, Today Dividends are expected to constantly grow at 4% forever Your required rate of return is 6% How much would you pay for this stock? Price Dividend, a year from now Rate of return Growth rate for dividends Dividend per share: $0.50, Today Dividends are not expected to grow, ever! Your required rate of return is 6% Now, how much would you pay for this stock? Price Dividend, a year from now Rate of return Growth rate for dividends

Explanation / Answer

Price of Stock = Dividend per share * (1 + dividend growth rate) / (required rate of return - dividend growth rate)

= $0.50 * (1 + 4%) / (6% - 4%)

= $26.00

Dividend, a year from now = Dividend per share * (1 + dividend growth rate)

= $0.50 * (1 +4%)

= $0.52

Rate of return = 6% (Given)

Growth rate for dividends = 4% (Given)

Price of Stock = Dividend per share / required rate of return

= $0.50 / 6%

= $8.33

Dividend, a year from now = Dividend per share * (1 + dividend growth rate)

= $0.50 * (1 +0%)

= $0.50

Rate of return = 6% (Given)

Growth rate for dividends = 0% (Given)

Dividend per share: $0.50, Today Dividends are expected to constantly grow at 4% forever Your required rate of return is 6%

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