Question

The company XYZ’s next year dividend per share is expected to be 4.50. The dividend in subsequent years is expected to grow at a rate of 10% per year. If the required rate of return is 15% per year, what should be its price? The prevailing market price is 80.

Answer 1

price:

V₀ = D₁ / (K_e - g ) ;

D₁ = Expected dividend next year

g = Expected growth rate in dividends

K_e = Investor’s required rate of return

$V_0=\frac{4.5}{0.15-0.10}=90$