90.8k views
3 votes
Tesla paid a dividend of $3 last year and the dividend is expected to grow at 12% in the next two years and 13% thereafter. The required rate of return is 18%. What is the current price of the stock.

1 Answer

5 votes

Answer:

$85

Step-by-step explanation:

The Current stock price of Tesla will be determined by the formula given below;

Po = [Do (1 + g) ] / (r - g)

Po = Current price

Do = Current dividend

r = Rate of return

g = growth of dividend

Do = $3 * 1.12 = $3.36

D1 = $3.36 * 1.12 = $3.76

Po = ($3.76 * 1.13 ) / (0.18 - 0.13)

Po = $ 4.25 / 0.05

Po = $85

User Sagie
by
3.8k points