Question

Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 11.5 percent. LTD’s recent dividend was $0.60. What is the value of Limited Brands stock when the required return is 13.5 percent? (Round your answer to 2 decimal places.)

Answer 1

Answer: $33.45

Step-by-step explanation:

Because we are given the growth rate as well as the most recent dividend. The best way to calculate this would be the GORDEN GROWTH MODEL of stick valuation.

The Formula is,

Po = D1 / Ke - g

Po is the price of stock

D1 is the expected dividend next year

k is the required return on investment

g is growth rate

First we need to calculate the expected dividend next year

Given a growth rate of 11.5% the calculation would be,

$0.60 + (11.5% x 0.60) = $0.669

Now we have the expected dividend we can plug it into the formula,

Po = $0.669 / 0.135 - 0.115

= $0.669 / 0.02

= $33.45

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