link co just paid a dividend of $1.00 per share. Analysts expect its dividend to grow at 20% per year for the next two years and then 3% per year thereafter. If the required rate of return in the stock is 7%, calculate the current value of the stock.
$32.49
$34.77
$35.82
$36.00
$37.20
D1=(1*1.2)=1.2
D2=(1.2*1.2)=1.44
Value after year 2=(D2*Growth rate)/(Required rate-Growth rate)
=(1.44*1.03)/(0.07-0.03)
=37.08
Hence current value=Future dividend and value*Present value of discounting factor(rate%,time period)
=1.2/1.07+1.44/1.07^2+37.08/1.07^2
=$34.77(Approx).
link co just paid a dividend of $1.00 per share. Analysts expect its dividend to grow...
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