Click to see additional instructions A company issued a dividend of $1.00 (Do) this year, which...

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business finance

Answer 1

Answer #1

N= period = 3 ( 3 years, based on dividend and growth rate calculation)

r_s= rate of return = 15%

g1 = growth rate =15%

g2= 5%

D0= current year dividend = 1

D1 = next year dividend

D1= D0 × (1+rs)

D1= 1× (1+0.15)= 1.15

D2= D1 × (1+0.15)

D2= 1.15×(1.15)= 1.3225

D3= D2× (1+g2)

D3= 1.3225 × (1.05)= 1.388625

P0 = value of stock

D= dividend at end of per year or next financial year

P0= D/(r_s-g)

P0= 1.388625 /(0.15-0.05)

P0= 1.388625 /(0.10)= 13.89

Answer 2

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