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A company has just paid a dividend of 2.81$. Its discount rate is 9.3%, and the...

A company has just paid a dividend of 2.81$. Its discount rate is 9.3%, and the expected perpetual growth rate is 5.4%. What would you expect to be the stock's price TODAY?

Express your answer in dollars, rounded to the nearest cent (2 decimals).

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Answer #1

Last Dividend, D0 = $2.81
Growth Rate, g = 5.40%
Discount Rate, k = 9.30%

Expected Dividend, D1 = D0 * (1 + g)
Expected Dividend, D1 = $2.81 * 1.054
Expected Dividend, D1 = $2.96174

Stock Price = D1 / (k - g)
Stock Price = $2.96174 / (0.0930 - 0.0540)
Stock Price = $2.96174 / 0.0390
Stock Price = $75.94

So, stock price today is $75.94

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