Today the following represents the stock price for Bryant Corporation. 52 Week L
ID: 2653189 • Letter: T
Question
Today the following represents the stock price for Bryant Corporation.
52 Week Low $54.20, 52 Week High $69.75, Yesterday’s closing price $81.52, Dividend paid out yesterday $2.64
According to the Value Line Investment Survey, the growth rate in dividends is expected to be 14% per year for the next 7 years.Suppose that the firm meets this anticipated dividend growth rate for the next 7 years, and then the growth rate falls to the normal 4% per year forever.Assume investors require 17% return on the stock.Is the stock priced correctly?Use the answer obtained to rationalize your discussion.What other factors could affect your answer?
Explanation / Answer
Calculation of Price of Stock :
Dividend = $2.64
Growth = 14% for 7 years and 4% thereafter
Required Return = 17%
Price of Stock = 2.64(1.140)/1.17 + 2.64(1.14)2/1.172 + 2.64(1.14)3/1.173 + 2.64(1.14)4/1.174 +
2.64(1.14)5/1.175 + 2.64(1.14)6/1.176 + 2.64(1.14)7/1.177 + 2.64(1.14)7(1.04)/1.17
1-((1.04/1.17)
= 2.56+ 2.51 + 2.44 + 2.38 + 2.32 + 2.26 + 2.58 + 52.92
= $69.97
Closing Price = $81.52
Thus Stock is not priced correctly.