Jane has just heard about Nike Inc. and how investors are buying up their shares which is currently being sold at $235.75 per share. She found out that last year they paid dividends of $1.44 and they anticipate that the dividends would grow at a rate of 8% for years 1 & 2, then it would increase to 10% in years 3 & 4 and finally level off thereafter with a growth rate of 5% until infinity.

If the expected rate of return is 8%, determine the stock value of this stock and would you advise Karen to invest in this stock? Explain your answer?

Answer rating: 100% (QA)

First we need to calculate the expected dividends for each year Year 1 144 x 1 8 156 Year 2 156 x 1 ... View the full answer