Question

A7X Corp. just paid a dividend of $2.40 per share. The dividends are expected to grow at 16 percent for the next eight years and then level off to a growth rate of 6 percent indefinitely. If the required return is 15 percent, what is the price of the stock today

Answer 1

50.26

Step-by-step explanation:

We can calculate the price of the stock by summing up the present values of all years. To calculate PV of each year we need to grow the dividend value by 6% and then multiply it to the Present value factor.

Year D0 Value of dividend PVF (15%) Value

1 D1 2.78 0.869 2.42

2 D2 3.23 0.756 2.44

3 D3 3.75 0.657 2.46

4 D4 4.35 0.571 2.48

5 D5 5.04 0.497 2.51

6 D6 5.85 0.432 2.53

7 D7 6.78 0.375 2.55

8 D8 7.87 0.326 2.57

9 D9 8.34 0.09 30.29

Stock value 50.26