Question

the expected dividend next year is 1.30 and dividends are expected to grow at 5% forever. if the discount rate is 10% what is the value of this promised dividend stream

Answer 1

$ 26.00

Explanation:

Thinking process:

The present value is given by the following formula:

`PV = (C)/(r-g)`

where C = $ 1.30

r = 10 %

g = 5 %

`PV = (1.30)/(0.10 - 0.05) \\= $26.00`