Storico Co. just paid a dividend of $1.70 per share. The company will increase i
ID: 2755918 • Letter: S
Question
Storico Co. just paid a dividend of $1.70 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Storico stock is 11 percent, what will a share of stock sell for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
share of stock sell for today = D1/(1+r) + D2/(1+r) ^ 2 + D3/(1+r) ^3 + D4/((R-g)*(1+r) ^ 3 )
share of stock sell for today = 1.70*1.20/1.11 + 1.70*1.20*1.15/1.11 ^2 + 1.70*1.20*1.15*1.1/1.11 ^3 + 1.70*1.20*1.15*1.1*1.05/((11%-5%)*1.11 ^3)
share of stock sell for today = $ 38.65
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