Question

Keidis Industries will pay a dividend of $5.15, $6.25, and $7.45 per share for each of the next three years, respectively. In four years, you believe that the company will be acquired for $69.00 per share. The return on similar stocks is 11.4 percent. What is the current stock price

Answer 1

The answer is $59.85

Step-by-step explanation:

This question will be solved using the Dividend Discount Model. It is one of the valuation methods used in valuing price of Equity/stock.

Po = D1 + (1 + r)^n + D2 + (1 + r)^n + D2 + (1 + r)^n + CF4 /(1 + r)^n

Po is the current worth of stocks

D1, D2, D3 is the dividend paid in year 1, 2 and 3

CF4 is the price of the company in year 4

r is the discount rate

n is the number of years

$5.15 /1.114^1 + $6.25 /1.114^2 +$7.45/1.114^3 + $69/1.114^4

$4.62 + $5.04 + $5.39 + $44.80

Current price of the stock = $59.85