Could I Industries just paid a dividend of $1.1 per share. The dividends are exp
ID: 2637287 • Letter: C
Question
Could I Industries just paid a dividend of $1.1 per share. The dividends are expected to grow at a 19 percent rate for the next 6 years and then level off to a 6 percent growth rate indefinitely. If the required return is 14 percent, what is the value of the stock today?
Could I Industries just paid a dividend of $1.1 per share. The dividends are expected to grow at a 19 percent rate for the next 6 years and then level off to a 6 percent growth rate indefinitely. If the required return is 14 percent, what is the value of the stock today?
Explanation / Answer
Recent Dividend Payment = $1.1
As per the given details in the problem
Value of stock = D1/1.14 + D2/1.14^2 + D3/1.14^3 + D4/1.14^4 + D5/1.14^5 + D6/1.14^6 + P6/1.14^6
P6 = Price of stock in year 6 = D7/.14-.06 = D6*1.06/.08 = 1.1*1.19^6*1.06/.08
= $41.39
so, Value of stock = 1.1*1.19/1.14 + 1.1*1.19^2/1.14^2 + 1.1*1.19^3/1.14^3 + 1.1*1.19^4/1.14^4 + 1.1*1.19^5/1.14^5 + 1.1*1.19^6/1.14^6 + 41.39/1.14^6
so, Value of stock =1.1482+1.1986+1.2511+1.3060+1.3633+1.4231+18.85
=$ 26.54