Question

Based on its perceived riskiness, the annual required rate of return is 11.5% for shares of Cyberdyne Inc. The company just paid their annual dividend of $8.69 a share. Analysts predict that the dividend will grow at an annual rate of 6.1%. What is the estimated price of the stock in 5 years, using the Dividend Discount Model

Answer 1

the estimated price of the stock in 5 years, using the Dividend Discount Model is $216.38

Step-by-step explanation:

The calculation of the estimated price of the stock in 5 years is given below:

= 5th Year dividend ÷ (Required return - Growth Rate)

Dividend at year 5 should be

=Dividend at year 0 × (1 + Growth Rate)^5

= $8.69 × (1.061)^5 ÷ (0.11.5 - 0.061)

= $216.38

Hence, the estimated price of the stock in 5 years, using the Dividend Discount Model is $216.38