4 Let's assume that dividends will grow at a variable rate for the first three...

 

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4 • Let's assume that dividends will grow at a variable rate for the first three years (2016, 2017, and 2018). After that, the annual dividend growth rate will settle down to 3% and stay there indefinitely. Example(4):Variable Growth Model Starting with the latest (2015) annual dividend of $2.21 a share, we estimate that Sweatmore's dividends should grow by 20% next year (in 2016), by 16% in 2017, and then by 13% in 2018 before dropping to a 3% rate. Finally, suppose that investors require an 11% rate of return. • What is the expected value of Sweatmore's stock? Equation 8.9 Equation 8.9a Value of a share of stock V= Present value of future dividends during the initial variable-growth period D₂ D₁ (1+r) (1+r)² + + AM D₂ (1 + r)" + Present value of the price + of the stock at the end of the variable-growth period D,(1 + g) (r-g) (1 + r)" 4 • Let's assume that dividends will grow at a variable rate for the first three years (2016, 2017, and 2018). After that, the annual dividend growth rate will settle down to 3% and stay there indefinitely. Example(4):Variable Growth Model Starting with the latest (2015) annual dividend of $2.21 a share, we estimate that Sweatmore's dividends should grow by 20% next year (in 2016), by 16% in 2017, and then by 13% in 2018 before dropping to a 3% rate. Finally, suppose that investors require an 11% rate of return. • What is the expected value of Sweatmore's stock? Equation 8.9 Equation 8.9a Value of a share of stock V= Present value of future dividends during the initial variable-growth period D₂ D₁ (1+r) (1+r)² + + AM D₂ (1 + r)" + Present value of the price + of the stock at the end of the variable-growth period D,(1 + g) (r-g) (1 + r)"

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DO 221 r 11 g 2016133 Step 22 Value of stock u... View the full answer