Google's expected next dividend on its shares would be $2. These dividends are expected to grow at
Question:
Google's expected next dividend on its shares would be $2. These dividends are expected to grow at the rate of 5% per annum for the next 3 years. After that the growth rate in dividend will be negative 2% per annum for the following 4 years. Then the expected growth rate in dividends would be 6% per annum in perpetuity. If the required rate of return of Google shares is 9% per annum:
A. What is the current value of Google shares?
B. What is the price of Google shares in Y1 and Y2?
C. What is the price of Google shares in Y10?
D. If you buy the share in Y1 and sell it in Y2, what is the capital gain yield and dividend yield of Google shares?
E. If you buy the share in Y1 and sell it in Y2, what is the total return of Google shares?
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt