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Discount growth model
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Discount growth model
Discount growth model
Based on your analysis of previous financial statements, you found that the dividend- paying behavior of companies that in the past were in a good financial position, and estimate the following: • Dividends will grow by 30% in the first year, • then by 20% the second year, • then by 15% in the third year, • then by 4% for all the years to follow. 1. If a company's last dividend was $1.5, find the estimated values of the dividends for the coming 4 years (D1, D2, D3, and D4). [4 marks, b1] 2. If the stock required rate of return is 16%, use the Dividend Growth Model to find the stock price in Year 3. [4 marks, b1] 3. What is the stock price of this year (PO)? [4 marks, b1] 4. If the stock price is trading at $20, analyze and formulate a strategy for investment in the stock. [8 marks, c2]
Based on your analysis of previous financial statements, you found that the dividend- paying behavior of companies that in the past were in a good financial position, and estimate the following: • Dividends will grow by 30% in the first year, • then by 20% the second year, • then by 15% in the third year, • then by 4% for all the years to follow. 1. If a company's last dividend was $1.5, find the estimated values of the dividends for the coming 4 years (D1, D2, D3, and D4). [4 marks, b1] 2. If the stock required rate of return is 16%, use the Dividend Growth Model to find the stock price in Year 3. [4 marks, b1] 3. What is the stock price of this year (PO)? [4 marks, b1] 4. If the stock price is trading at $20, analyze and formulate a strategy for investment in the stock. [8 marks, c2]
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