Question

HCA Healthcare has a current stock price of $36, an expected constant growth rate of 5%, and its last dividend (DO) was $2.40. In view of HCA’s strong financial position, its required rate of return is 12 percent. If HCA’s dividends are expected to grow at a constant rate in the future, what is the firm’s expected stock price in 5 years?

Answer 1

the expected stock price of HCA Healthcare in 5 years is $36.17.

Step-by-step explanation:

We can use the Gordon Growth Model to calculate the expected stock price in 5 years:

Expected Stock Price = (Next Dividend / (Required Rate of Return - Growth Rate))

First, we need to calculate the next dividend. We can use the constant growth rate and the last dividend to do this:

Next Dividend = Last Dividend * (1 + Growth Rate) = $2.40 * (1 + 0.05) = $2.52

Now we can plug in the values and solve for the expected stock price in 5 years:

Expected Stock Price = ($2.52 / (0.12 - 0.05)) * (1 + 0.05)^5

Expected Stock Price = ($2.52 / 0.07) * 1.2763

Expected Stock Price = $36.17

Therefore, the expected stock price of HCA Healthcare in 5 years is $36.17.