Answer:
Value of Stock is $6.68
Explanation:
We need to calculate the present value of each dividend payment to arrive at the value of stock.
Number Dividend PV factor PV of Dividend
First $0.47 (1+14%)^-1 = 0.8772 $0.41
Second $0.52 (1+14%)^-2 = 0.7695 $0.40
Third $0.67 (1+14%)^-3 = 0.6750 $0.45
Forth $0.97 (1+14%)^-4 = 0.5921 $0.57
*Perpetuity$9.35 (1+14%)^-5 = 0.5194 $4.85
Total $6.68
* Perpetuity
After 4 year the dividend will be grow at a constant rate. So, it will be considered as the perpetuity and it value at year 5 will be calculated as follow
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.
As per given data
Dividend = $0.97 x 1.033 = $1
Growth rate = 3.3%
Discount rate = 14%
Formula to calculate the value of stock
Price = Dividend / ( Rate or return - growth rate )
Price = $1 / ( 14% - 3.3% )
Price = $9.35
