Storico Co. just paid a dividend of $1.35 per share. The company will increase i
ID: 2727499 • Letter: S
Question
Storico Co. just paid a dividend of $1.35 per share. The company will increase its dividend by 24 percent next year and will then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Storico stock is 12 percent, what will a share of stock sell for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price $
Explanation / Answer
WACC 12% Year 1 2 3 4 5 Growth Rate 24% 18% 12% 6% 6% Divedend 1.35 1.674 1.97532 2.212358 2.3451 2.485806 41.4301 As per divedend discount model D1/r-g i.e 2.48/(12%-6%)=41.43$ Present Value 1.494643 1.574713 1.574713 1.490353 23.50855 Present Value of stock is sum of all future cashflows 29.64$