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  3. 2. vogel ag is expected to pay a dividend next yea

2. Vogel AG is expected to pay a dividend next year (t=1) of D1= €3.00 per...

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Finance

2. Vogel AG is expected to pay a dividend next year (t=1) of D1=€3.00 per share. The stock has an equity cost of capital orrequired return of 10% per year. The current stock price is€50/share.

A. Calculate this firm’s expected future annual growth rate ofdividends.

B. Calculate this firm’s expected stock price next year (t=1)after the dividend D1 has been paid out.

Answer & Explanation Solved by verified expert
4.2 Ratings (565 Votes)

2)
A. Annual growth rate 4%
Working:
As per dividend discount model,
Required return = (D1/P0)+g Where,
          0.10 = (3.00/50.00)+g D1 €       3.00
          0.10 = 0.06+g P0 €    50.00
g = 0.04 g growth rate ?
B. Stock price €    52.00
As per dividend discount model,
Where,
Stock price = D1*(1+g)/(K-g) D1 €       3.00
(t1) = 3.00*(1+0.04)/(0.10-0.04) g 0.04
= €    52.00 K           0.10

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Transcribed Image Text

2. Vogel AG is expected to pay a dividend next year (t=1) of D1=€3.00 per share. The stock has an equity cost of capital orrequired return of 10% per year. The current stock price is€50/share.A. Calculate this firm’s expected future annual growth rate ofdividends.B. Calculate this firm’s expected stock price next year (t=1)after the dividend D1 has been paid out.

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