caluculate present value

sessiljoseph
Good Student
Posts: 22
Joined: Sat Apr 26, 2014 7:29 am

caluculate present value

Postby sessiljoseph » Mon Apr 28, 2014 7:00 am

Firm a is supposed to grow at 5%,the dividened it paid earlier this year per share held was 1$.estimate the present value of one stock if it is till perpetuity, if required cost of capital is 10%

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

caluculate present value

Postby edupristine » Tue Apr 29, 2014 6:01 am

To calculate the stock price with dividend model: S = d*(1+g)/(r-g) where d is the last dividend (1$), g is the dividend growth (5%) and r is the cost of capital (10%). S = 1*(1+.05)/(0.10-0.05) = $21


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