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Nonconstant Growth Stock Valuation Assume that the average firm in your company's industry is expected to...

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Finance

Nonconstant Growth Stock Valuation Assume that the average firmin your company's industry is expected to grow at a constant rateof 7% and that its dividend yield is 5%. Your company is about asrisky as the average firm in the industry and just paid a dividend(D0) of $2.25. You expect that the growth rate of dividends will be50% during the first year (g0,1 = 50%) and 20% during the secondyear (g1,2 = 20%). After Year 2, dividend growth will be constantat 7%. What is the estimated value per share of your firm’s stock?Do not round intermediate calculations. Round your answer to thenearest cent.

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3.6 Ratings (628 Votes)
Calculation of cost of equityke Let the price of one share in the industry be100 Hence Dividend shall be 5ie5of 100 P0D1keg where P0price of share now D1    See Answer
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Nonconstant Growth Stock Valuation Assume that the average firmin your company's industry is expected to grow at a constant rateof 7% and that its dividend yield is 5%. Your company is about asrisky as the average firm in the industry and just paid a dividend(D0) of $2.25. You expect that the growth rate of dividends will be50% during the first year (g0,1 = 50%) and 20% during the secondyear (g1,2 = 20%). After Year 2, dividend growth will be constantat 7%. What is the estimated value per share of your firm’s stock?Do not round intermediate calculations. Round your answer to thenearest cent.

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