Following table is the data of past dividend payments.

dividend (in millions)

2012$1.00

2013$1.50

2014$2.00

2015$2.35

2016$3.15

2017$4.00

2018$4.65

2019$5.25

2020$5.96


Using the past dividend data, you will forecast the future growth rate.

The most recent dividend paid by New Technologies was an annual dividend of $5.96 million in total and there are 20 million shares outstanding .

Assume T-bill rate is 3%, S&P500 market return is 7%, beta of New Technologies is 0.88.

#1.  What is the appropriate discount rate (required rate of return)?
#2. You forecast that future dividends will grow for 3 years at the geometric average of historical dividend growth rate using the data given. What is the geometric average of historical dividend growth rate?
#3. You assume that dividends for the next 3 years will be increased at the rate you just calculated from #2. After that, you assume dividends are expected to increase by 4% each year forever. What should be today's stock price per share?
#4. If the H-model is applied to the above question, at what rate should the growth rate decline each year to reach the constant growth rate of 4%?
#5. Using the H-model, what should be the stock price per share today?

Answer rating: 100% (QA)

1 The appropriate discount rate required rate of return can be calculated using the Capital Asset Pricing Model CAPM Required rate of return Riskfree rate Beta Market return Riskfree rate Riskfree rat... View the full answer