Oriole Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, management expects the dividend growth rate to be constant at 8 percent. If the required rate of return is 17.50 percent, what is the current value of the stock

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Lyric Wood

Business

20 January, 21:05

Oriole Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, management expects the dividend growth rate to be constant at 8 percent. If the required rate of return is 17.50 percent, what is the current value of the stock

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Chase · Answer 1

Dividend growth model for the valuation of stock

Year Year Year Year

1 2 3 4

8%

Dividend 5 6.25 4.75 3

Ifninty dividend 34.42

Total Cashflows 5 6.25 4.75 37.42

Present value 1.02 4.52 2.92 19.63

Value 28.11

Dividend growth model

Do (1+g) / Ke-g

3 (1+8%) / 17.5%-8% = 34.42