Intel has just paid a dividend of $62 per stock. Intel is expected to pay regular annual dividend indefinitely. The growth rate of Intel dividend is expected to be 10% in the first three years and then 3% indefinitely. If you require a return of 8%, how much are you willing to pay (in $) for the stock? Round your answer to at least 2 decimal places.

Question

Cassius Ho

Business

7 November, 11:20

Intel has just paid a dividend of $62 per stock. Intel is expected to pay regular annual dividend indefinitely. The growth rate of Intel dividend is expected to be 10% in the first three years and then 3% indefinitely. If you require a return of 8%, how much are you willing to pay (in $) for the stock? Round your answer to at least 2 decimal places.

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Answers (1)

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Conner Noble · Answer 1

I will pay $1,364

Explanation:

Dividend Valuation method is used to value the stock price of a company based on the dividend paid, its growth rate and rate of return. The price is calculated by calculating present value of future dividend payment.

Formula to calculate the value of stock

Dividend in first years = 62 x 110% = $68.2

Price = Dividend / (Rate or return - growth rate)

Price = $68.2 / (8% - 3%)

Price = $68.2 / 5%

Price = $68.2 / 0.05

Price = $1,364