ABC Inc will pay a dividend of $0.9, $9.7, $6.1, and $7.6 for years 1, 2,...
ABC Inc will pay a dividend of $0.9, $9.7, $6.1, and $7.6 for years 1, 2, 3, and 4, respectively. Thereafter, the dividend will grow at 2.6% per year forever. If the annual required rate of return for the stock is 5%, what is it's current price? Round your answer to the nearest whole dollar, and leave out the "$" sign.
Homework Answers
Value after year 4=(D4*Growth rate)/(Required return-Growth rate)
=(7.6*1.026)/(0.05-0.026)
=324.9
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=0.9/1.05+9.7/1.05^2+6.1/1.05^3+7.6/1.05^4+324.9/1.05^4
=289(Approx).
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