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What is the value of Company X stock if the dividend next year will be $3 and is expected to grow at a rate of 4% forever if your required return is 10.74%
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13 votes
13 votes
What is the value of Company X stock if the dividend next year will be $3 and is expected to grow at a rate of 4% forever if your required return is 10.74%

User Andre Perkins
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1 Answer

15 votes
15 votes

Answer:

PV= $44.51

Step-by-step explanation:

Giving the following information:

Dividen 1= $3

Discount rate= 10.74% = 0.1074

Growth rate= 4% = 0.04

To calculate the price of the stock today, we need to use the following formula:

PV= D1 / (i - g)

PV= 3 / (0.1074 - 0.04)

PV= 3 / 0.0674

PV= $44.51

User Nicolas De Fontenay
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