How do you calculate...

kseniaru

Use the following information and the multi-period dividend discount model to find the value of Computech’s common stock.

Last year’s dividend was $1.62.
The dividend is expected to grow at 12% for three years.
HOW WOULD YOU CALCULATE B.

The growth rate of dividends after three years is expected to stabilize at 4%.
The required return for Computech’s common stock is 15%.
Which of the following statements about Computech's stock is least accurate?


A) At the end of two years, Computech's stock will sell for $20.64.

B) The dividend at the end of year three is expected to be $2.27.

C) Computech's stock is currently worth $17.46.


Your answer: C was correct!

HOW WOULD YOU CALCULATE B?? ANYBODY? do you take the d1 d2 and then what?

evolsteevol

The statement for choice B is correct:

Last year's dividend (aka dividend at time zero) : 1.62
It grows at 12% for 3 years:

dividend at t=1 : 1.62* 1.12 = 1.8144
dividend at t=2: 1.8144*1.12= 2.032128
dividend at t=3: 2.032128*1.12= 2.27598336

they definitley rounded the wrong way but choice C is definitley more wrong than B