A stock just paid an annual dividend of $6.1. The dividend is expected to grow by 3% per year for the next 4 years. In 4 years, the P/E ratio is expected to be 14 and the payout ratio to be 60%. The required rate of return is 8%. What is the value of the stock?

A stock just paid an annual dividend of $6.1. The dividend is expected to grow by 3% per year for the next 4 years. In 4 years, the P/E ratio is expected to be 14 and the payout ratio to be 60%. The required rate of return is 8%. What is the value of the stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 12P

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Question

A stock just paid an annual dividend of $6.1. The dividend is expected to grow by 3% per year for the next 4 years. In 4 years, the P/E ratio is expected to be 14 and the payout ratio to be 60%.

The required rate of return is 8%.

What is the value of the stock?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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