Mittal Corp forecasts dividends of $1.50 one year from now, $2.20 two years from
ID: 2771545 • Letter: M
Question
Mittal Corp forecasts dividends of $1.50 one year from now, $2.20 two years from now, $2.60 three years from now, followed by growth in the dividend of 5% per year forever after that. The required return on the stock is 9%. Your estimate of Mittal's stock price should be $____________ per share? Mittal Corp forecasts dividends of $1.50 one year from now, $2.20 two years from now, $2.60 three years from now, followed by growth in the dividend of 5% per year forever after that. The required return on the stock is 9%. Your estimate of Mittal's stock price should be $____________ per share? Mittal Corp forecasts dividends of $1.50 one year from now, $2.20 two years from now, $2.60 three years from now, followed by growth in the dividend of 5% per year forever after that. The required return on the stock is 9%. Your estimate of Mittal's stock price should be $____________ per share?Explanation / Answer
Growth rate:
= ($2.60÷$1.50)^(1÷3)-1
= 20.12%
Stock price at end of 3rd year:
= $2.60×(1+5%)÷(9%-5%)
= $68.25
Current stock price:
= $68.25×(1÷(1+9%)^3)
= $52.70