13. Constant-growth dividend discount model: Using the following data provided,

Question

13. Constant-growth dividend discount model: Using the following data provided, calculate the current price of these stocks assuming an investor required rate of return of 9%.

Company

Current year’s dividend

Dividend growth rate

Current price

Cabo Technology

$0.90

5.0%

Cellular Systems

$3.25

3.0%

Candida Consultants

$5.38

6.0%

Coliseum Theaters

$12.75

7.0%

Company

Current year’s dividend

Dividend growth rate

Current price

Cabo Technology

$0.90

5.0%

Cellular Systems

$3.25

3.0%

Candida Consultants

$5.38

6.0%

Coliseum Theaters

$12.75

7.0%

Explanation / Answer

Current price=D1/(Required return-Growth rate)

Company Current price Cabo Technology (0.9*1.05)/(0.09-0.05)=$23.625 Cellular Systems (3.25*1.03)/(0.09-0.03)=$55.792(Approx) Candida Consultants (5.38*1.06)/(0.09-0.06)=$190.093(Approx) Coliseum Theaters (12.75*1.07)/(0.09-0.07)=$682.125

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