Storico Co. just paid a dividend of $2.15 per share. The company will increase i
ID: 2728209 • Letter: S
Question
Storico Co. just paid a dividend of $2.15 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.)
Storico Co. just paid a dividend of $2.15 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.)
Explanation / Answer
Year growth rate expected dividend 70000 0 2.15 30000 1 24% 2.666 40000 2 18% 3.14588 12000 3 12% 3.523386 180000 4 6% 3.734789 192000 price of bond expected dividend/(required rate of return-groth rate) 62.24648