Question

Wyatt Oil presently pays no dividend. You anticipate Wyatt Oil will pay an annual dividend of $0.56 per share two years from today and you expect dividends to grow by 4% per year thereafter. IF Wyatt Oil's equity cost of capital is 12%, then the value of a share of Wyatt Oil today is:__________

Answer 1

Answer:

The value of a share of Wyatt Oil today is %6.25.

Explanation:

Value after of a share year 2 = (D2*Growth rate)/(Cost of capital-Growth rate)

                        = (0.56×1.04)/(0.12-0.04)

                       = $7.28  

the current value = Future dividends×Present value of discounting factor(12%,time period)

=0.56/[(1.12)^2] + 7.28/[(1.12)^2]

= $6.25

Therefore, the value of a share of Wyatt Oil today is %6.25.