Answer:
The value of a share of MGM Resorts stock today will be $16.42
Explanation:
In order to calculate the value of a share of MGM Resorts stock today we would have to calculate the following steps:
Step-1, Dividend for the next 2 years
Dividend per share in Year 0 (D0) = $1.20 per share
Dividend per share in Year 1 (D1) = $1.4400 per share [$1.20 x 120%]
Dividend per share in Year 2 (D2) = $1.7280 per share [$1.4400 x 120%]
Step-2, Share Price in Year 2
Dividend Growth Rate after Year 2 (g) = 4.00% per year
Required Rate of Return (Ke) = 14.00%
Share Price in Year 2 (P2) = D2(1 + g) / (Ke – g)
= $1.7280(1 + 0.04) / (0.14 – 0.04)
= $1.7971 / 0.10
= $17.97 per share
Step-3, The Current Stock Price
As per Dividend Discount Model, Current Stock Price the aggregate of the Present Value of the future dividend payments and the present value the share price in year 2
Year Cash flow ($) PVF at 14.00% Present Value of cash flows ($)
[Cash flows x PVF]
1 1.4400 0.877193 1.26
2 1.7280 0.769468 1.33
2 17.97 0.769468 13.83
TOTAL 16.42
Hence, the value of a share of MGM Resorts stock today will be $16.42
