You estimate that Valley, Inc. will increase its dividend at 3.7 percent for the foreseeable future....
You estimate that Valley, Inc. will increase its dividend at 3.7
percent for the foreseeable future. The firm recently distributed a
$3.68 dividend and you estimate the required return on the stock is
11.9 percent. Calculate the stock's current market value.
Homework Answers
Ans $ 46.54
| P0 = | Price of Share |
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| P0 = | 3.81616 / (11.9%- 3.7%) |
| P0 = | 46.54 |
| D1 = | D0* (1 + g) |
| D1 = | 3.68* (1 + 3.7%) |
| D1 = | 3.81616 |
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