Monsanto\'s stock price on June 27, 2016 was $100. The following information is
ID: 2737745 • Letter: M
Question
Monsanto's stock price on June 27, 2016 was $100. The following information is taken from Yahoo finance: Dividend history: 2011: $1014; 2012: $1.28; 2013: $1.56; 2014: $1.78; 2015: $1.92 and 2016: $2.16 The required rate of return for large company stocks as Monsanto is 11%. Answer the following questions and show how you arrived at your answer: What is the average dividend growth rate for the firm? Using the stock valuation model, what is the intrinsic value of the company's stock? What is the growth rate implied by the stock price of $ 100? How do you explain the difference between the intrinsic value and the actual stock price?Explanation / Answer
Solution.
A. Calculation of average dividend growth rate of firm.
B. Intrensic value of stock.
Dividend discount model.
Formula = Dividend in one period / required rate of return.
= $2.16 x ( 1+ .1372 ) / 11%
= 2.46 / 11% = $22.36
C. Calculation for implied growth rate.
$22.36 = 2.16 ( 1 + g ) / 0.10 - g
= 2.236 - 22.36g = 2.16 ( 1 + g )
= -24.52g = - .07 = 0.28%
Year Dividend % Change 2016 2.16 12.50% 2015 1.92 7.86% 2014 1.78 14.10% 2013 1.56 21.87% 2012 1.28 12.28% 2011 1.14 Total 68.61% Year 5.00 Average 13.72%