Hewlett Packard recently paid a dividend of $2.50 for 2016, and going forward, their dividend is...

4.5 Ratings (969 Votes)

Step-1:Calculation of present value of next 5 years dividend

Year	Dividend	Discount factor	Present value
a	b	c=1.10^-a	d=b*c
1	$Â Â Â Â Â Â 2.58	0.909091	$Â Â Â Â Â Â 2.34
2	$Â Â Â Â Â Â 2.65	0.826446	$Â Â Â Â Â Â 2.19
3	$Â Â Â Â Â Â 2.73	0.751315	$Â Â Â Â Â Â 2.05
4	$Â Â Â Â Â Â 2.81	0.683013	$Â Â Â Â Â Â 1.92
5	$Â Â Â Â Â Â 2.90	0.620921	$Â Â Â Â Â Â 1.80

Total			$Â Â Â 10.31

Working:

Dividend of Year:
1	=	$Â Â Â Â Â Â 2.50	x	1.03	=	$Â Â Â Â Â Â 2.58
2	=	$Â Â Â Â Â Â 2.58	x	1.03	=	$Â Â Â Â Â Â 2.65
3	=	$Â Â Â Â Â Â 2.65	x	1.03	=	$Â Â Â Â Â Â 2.73
4	=	$Â Â Â Â Â Â 2.73	x	1.03	=	$Â Â Â Â Â Â 2.81
5	=	$Â Â Â Â Â Â 2.81	x	1.03	=	$Â Â Â Â Â Â 2.90

Step-2:Calculation of present value of dividends after year 5

Present value	=	D5(1+g)/(K-g)DF5		Where,
		=	$Â Â Â 47.69			D5	$Â Â Â Â Â Â 2.90
						g	6%
						K	10%
						DF5	0.620921

Step-3:Calculation of current stock price of stock

As per dividend discount model, current share price is the present value of future dividends.

Present value of future dividends	=	$Â Â Â 10.31	+	$Â Â Â 47.69
		=	$Â Â Â 57.99

So, current value of a share is $ 57.99

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Other questions asked by students