general cereal common stock dividends have been growing at an annual r

QUESTION

general cereal common stock dividends have been growing at an annual rate of 7 percent per year over the past 10 years. current dividends is $1.70 per share. what is the current value of share of this stock to an investor who requires a 12 percent rate of return if the dividends are expected t
Current Dividend (D 0 ) = $1.70 per share Dividend Growth Rate (g) = 7% per year over the past 10years Required Rate of Return ( R ) = 12% Current Value of the Share (P 0 ) = ? StockPrice (P 0 ) = D 1 / (r-g) D 1 = D 0 (1 g) Calculating Current value of the Share: D 1 =$1.70 (1 0.07) = $1.819 D 1 = $1.82Stock Price (P 0 ) = $1.82 / (0.12 0.07) (P 0 )= $36.40 If the Dividend Growth Rate is expected to Increase to9% per year:

D 1 =$1.70 (1 0.09) = $1.85 D 1 = $1.85 Stock Price (P 0 ) = $1.85 / (0.12 0.09) (P 0 )= $61.66 If the Dividend Growth Rate is expected to Decrease to6.5% per year: D 1 =$1.70 (1 0.065) = $1.81 D 1 = $1.81 Stock Price (P 0 ) = $1.81 / (0.12 0.065) (P 0 )= $32.90 Hope it may helps you

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