Question

Oriole Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, management expects the dividend growth rate to be constant at 8 percent. If the required rate of return is 17.50 percent, what is the current value of the stock

Answer 1

Step-by-step explanation:

Dividend growth model for the valuation of stock

Year Year Year Year

1 2 3 4

8%

Dividend 5 6.25 4.75 3

Ifninty dividend 34.42

Total Cashflows 5 6.25 4.75 37.42

Present value 1.02 4.52 2.92 19.63

Value 28.11

Dividend growth model

Do(1+g)/Ke-g

3(1+8%)/17.5%-8% =34.42