The Bell Weather Co. is a new firm in a rapidly growing industry. The company is
ID: 2777990 • Letter: T
Question
The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 17 percent a year for the next 4 years and then decreasing the growth rate to 6 percent per year. The company just paid its annual dividend in the amount of $2.40 per share. What is the current value of one share of this stock if the required rate of return is 7.90 percent?
The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 17 percent a year for the next 4 years and then decreasing the growth rate to 6 percent per year. The company just paid its annual dividend in the amount of $2.40 per share. What is the current value of one share of this stock if the required rate of return is 7.90 percent?
Explanation / Answer
D0 2.4 D1 2.496 D2 2.59584 D3 2.699674 D4 2.807661 D5 2.97612 D6 3.154687 Price = D1/(1+K)+D2/(1+K)2+D3/(1+K)3+D4/(1+K)4+D5/(1+K)5(K-g) Price = 2.49/(1.079)+2.60/(1.079)2+2.70/(1.079)3+2.80/(1+.079)4+2.97/(1.079)+3.15)1.079)5(.079-.06) Price = 2.31+2.22+2.14+2.07+2.03+113.52 Price = $ 125 Current price of the Stock is $ 125 approximately
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