Can someone help me out and see if the solution key is wrong here.
Question:
Stock Price : 45
Last Year's Dividend: 5
Dividend Growth Rate: 8%
Cost of Debt: 9%
Tax: 35%
D/E: .4
A. 14.34
B. 15.96
C. 16.86
Solution Key B
When we use Dividend Growth model shouldn't we use D1 instead of D? So in this case D1 would be 5.832 then why is the answer B.作者: LokiDog2 时间: 2011-7-11 19:42
D1 = 5*1.08作者: koba 时间: 2011-7-11 19:42
We always use estimated Dividend for next year. Sometimes its given, sometimes you need to calculate it by formula: D1=D0(1+g)作者: smartpants 时间: 2011-7-11 19:42
why is D1 5*1.08 though shouldn't it be 5*(1.08)^2 since Last year's dividend = D-1?作者: pacmandefense 时间: 2011-7-11 19:42
No!
Last year's dividend is D0. You can also see D0 as today's dividend, the current dividend or the dividend just paid.
