Question

A stock just paid a dividend of $2.94. The dividend is expected to grow at 24.88% for five years and then grow at 4.13% thereafter. The required return on the stock is 10.44%. What is the value of the stock?

Answer 1

The value of the stock is approximately $39.22.

Step-by-step explanation:

To calculate the value of the stock, we can use the dividend discount model (DDM). The DDM formula is as follows:

Value of Stock = Dividend / (Required Return - Dividend Growth Rate)

Plugging in the given values, we have:

Value of Stock = $2.94 / (0.1044 - 0.2488) + $2.94 * (1 + 0.0413) / (0.1044 - 0.0413)

After evaluating the formula, the value of the stock is approximately $39.22.