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Question 4: The last dividend paid by ABC company is 5 TL. The dividend is expected to grow next years by 49%, 6%, 3% 4% and 2% in the following years. If the expected return rate of investors (k) is 10%. a) what is the value of this stock today (PO)? b) What will the stock price be 10 years from today?

Question 4: The last dividend paid by ABC company is 5 TL. The dividend is expected to grow next years by 49%, 6%, 3% 4% and 2% in the following years. If the expected return rate of investors (k) is 10%. a) what is the value of this stock today (PO)? b) What will the stock price be 10 years from today?

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 5P: A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s...
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Question 4: The last dividend paid by ABC company is 5 TL. The dividend is expected to grow next years by 49%, 6%, 3% 4% and 2% in the following years. If the expected return rate of investors (k) is 10%. a) what is the value of this stock today (PO)? b) What will the stock price be 10 years from today?
Transcribed Image Text:Question 4: The last dividend paid by ABC company is 5 TL. The dividend is expected to grow next years by 49%, 6%, 3% 4% and 2% in the following years. If the expected return rate of investors (k) is 10%. a) what is the value of this stock today (PO)? b) What will the stock price be 10 years from today?
Expert Solution
Step 1

The dividend growth model is the valuation model that calculates the fair value of the stock on the assumption that the dividend grows at a stable rate in perpetuity or at different rates during the period.

Step 2

Dividend Growth Model Formula:

Price(P0)=DividendRe-g

 

Step 3

Computation of dividend:

D1=5 TL×(1+4%)=5.2 TLD2=5.2TL×(1+6%)=5.512 TLD3=5.512TL×(1+3%)=5.67 TLD4=5.67×(1+4%)=5.89 TLD5=5.89×(1+2%)=6 TL

 

 

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