Dividend discount model: Using the following data provided, calculate the curren
ID: 1172512 • Letter: D
Question
Dividend discount model: Using the following data provided, calculate the current price of these stocks assuming an investor required rate of return of 8%.
Company
Next year’s dividend
Next year’s expected price
Current value
Alfred Publishing
$0.35
$20.00
Aldo Food Market
$1.25
$60.00
ABC Warehouse
$2.40
$100.00
Anderson Windows
$16.00
$1000.00
USE EXCEL FORMULAS AND SHOW ALL WORK
Company
Next year’s dividend
Next year’s expected price
Current value
Alfred Publishing
$0.35
$20.00
Aldo Food Market
$1.25
$60.00
ABC Warehouse
$2.40
$100.00
Anderson Windows
$16.00
$1000.00
Explanation / Answer
Current Price = Present Value of Future Cash Flows
Alfred Publishing = (0.35+20)/(1+0.8) = $18.84
Aldo Food Market = (1.25+60)/(1+0.8) = $56.71
ABC Warehouse = (2.4+100)/(1+0.8) = $94.81
Anderson Windows=(16+1000)/(1+0.8) = $940.74