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Marizza181 [45]
3 years ago
7

is expected to pay a dividend of $2.60 and $2.24 over the next two years, respectively. After that, the company is expected to i

ncrease its annual dividend at 2.8 percent. What is the stock price today if the required return is 10.2 percent?
Business
2 answers:
Natalka [10]3 years ago
7 0

Answer: The stock prices for today are $35.14 and $30.27

Explanation:

Stock Price(P) = D1/{r-g}

D1 = $2.6

D2 = $2.24

r = 10.2%

g = 2.8%

P1 = 2.6/(0.102 - 0.028)

P1 = 2.6/0.074

P1 = $35.14

P2 = 2.24/(0.102 - 0.028)

P2 = 2.24/0.074

P2 = $30.27

Romashka-Z-Leto [24]3 years ago
5 0

Answer:

$29.13

Explanation:

first we need to calculate the growing perpetuity value for year 2:

= dividend / (discount rte - growth rate) = $2.24 / (10.2% - 2.8%) = $2.24 / 7.4% = $30.27

Now we have to calculate the present value of the dividends for the next two years and the growing perpetuity:

present value = ($2.60 / 1.102) + ($2.24 / 1.102²) + ($30.27 / 1.102²) = $2.36 + $1.84 + $24.93 = $29.13

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