An analyst uses a two-stage variable growth model to estimate the value of Old Maid Company's...
| An analyst uses a two-stage variable growth model to estimate the value of Old Maid Company's common stock. | ||||||||
| The most recent annual dividend paid by the company was $3 per share. The analyst expects dividends to increase | ||||||||
| 8% per year for the next 3 years and then drop to 4% starting in year 4 and remain stable for the foreseable future. | ||||||||
| The required rate of return used for the analysis is 10% | ||||||||
| d) What is the value of the stock attributable to years 4 and beyond? (use pv function, where answer to part C is the fv)answer C=3.93 | |||||||||
Homework Answers
P3 = D4 / ( Ke - g)
Computation of D4
P3 = 3.93 / ( 10% - 4%)
= $ 3.93 / 6%
= 65.51
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