Common Stock Value: Variable Growth Lawrence Industries\' most recent annual div

Question

Common Stock Value: Variable Growth

Lawrence Industries' most recent annual dividend was $1.80 per share (D o = $1.80), and the firm's required rate of return is 11%. Find the market value of Lawrence's shares when:

a) Dividends are expected to grow at 8% annually for 3 years, followed by a 5% constant annual growth rate in years 4 to infinity.

b) Dividends are expected to grow at 8% annually for 3 years, followed by a 0% constant annual growth rate in years 4 to infinity.

c) Dividends are expected to grow at 8% annually for 3 years, followed by a 10% constant annual growth rate in years 4 to infinity.

Explanation / Answer

a.

b.

c.

a. Dividend $1.80 Required Return= 11% Dividend Growth rate 8.00% after 4 years 5% constant Year 0 1 2 3 4 Dividend $1.94 $2.10 $2.27 $2.38 Share price 64.8 69.984 75.58272 $39.68 Share price PV $218.21

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