Final answer:
To calculate the value of the stock, use the dividend discount model (DDM) and calculate the present value of future dividends. First, calculate the dividends for the next two years using the expected growth rate. Next, calculate the present value of the future dividends using the required return. Finally, calculate the present value of the dividends beyond the second year using the growth rate. Add up the present values of all the dividends to find the value of the stock.
Step-by-step explanation:
To calculate the value of the stock, we can use the dividend discount model (DDM). The DDM calculates the present value of future dividends, taking into account the expected growth rate and the required return on the stock. First, let's calculate the dividends for the next two years, using the expected growth rate of 23.29%. The dividend for the first year would be $2.33 * (1 + 0.2329) = $2.88. The dividend for the second year would be $2.88 * (1 + 0.2329) = $3.57. Next, we can calculate the present value of the future dividends using the required return of 10.20%. The present value of the first year's dividend would be $2.88 / (1 + 0.1020) = $2.62. The present value of the second year's dividend would be $3.57 / (1 + 0.1020)^2 = $2.91. Finally, let's calculate the present value of the dividends beyond the second year, using the growth rate of 3.85%. We can use the formula for the present value of a perpetuity: present value = dividend / (required return - growth rate). The present value of the dividends beyond the second year would be $3.57 / (0.1020 - 0.0385) = $59.13. Adding up the present values of all the dividends, we get: $2.62 + $2.91 + $59.13 = $64.66. Therefore, the value of the stock is $64.66.