Question

holyrood co. just paid a dividend of $2.45 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 holyrood stock is 11 percent, what will a share of stock sell for today? show your calculation steps clearly.

Answer 1

To calculate the current value of a stock, we need to calculate the present value of all future dividends. In this case, the dividend is expected to grow at a decreasing rate until it reaches a constant growth rate. We can use the dividend discount model (DDM) to calculate the present value of each dividend and sum them up to find the current stock price.

Step-by-step explanation:

To calculate the current value of a stock, we need to calculate the present value of all future dividends. In this case, the dividend is expected to grow at a decreasing rate until it reaches a constant growth rate. We can use the dividend discount model (DDM) to calculate the present value of each dividend and sum them up to find the current stock price.