Over the past 5 years the earnings per share (EPS) of a local firm have grown fr
ID: 2702900 • Letter: O
Question
Over the past 5 years the earnings per share (EPS) of a local firm have grown from $0.62 to $0.91. If an investor in this firm is assumed to have a required rate of return of 14%, what is the current value of its common stock if its current dividend is 0.12 (D0 = $0.12)? Assume EPS (and therefore its dividends per share) will continue to grow at a constant rate.
Over the past 5 years the earnings per share (EPS) of a local firm have grown from $0.62 to $0.91. If an investor in this firm is assumed to have a required rate of return of 14%, what is the current value of its common stock if its current dividend is 0.12 (D0 = $0.12)? Assume EPS (and therefore its dividends per share) will continue to grow at a constant rate.Explanation / Answer
Hi,
Please find the answer as follows:
Growth Rate = Rate(Nper, PMT, PV, FV)
Nper = 5
PMT = 0
PV = -.62
FV = .91
Therefore Growth Rate = Rate(5,0,-.62,.91) = 8%
Current Value = D1/(Ke - g) =.12*(1+.08)/(.14 - .08) = 2.16
Answer is 2.16
Thanks.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.