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the merriweather co. just announced that it will pay a dividend next year of $4.60. the company will then increase its dividend by 8% per year for two years, after which it will indefinitely maintain a constant 3% dividend growth rate. what is one share of stock worth today assuming a required rate of return of 14%?

Respuesta :

The worth of one share of stock given a required rate of return is $45.39.

What is the worth of the stock?

In the two-stage dividend growth model, the first stage is characterised by high growth rate. In the second stage, the high growth rate falls to a steady or normal growth rate

Dividend in Y1 = $4.60

Dividend in Y2 = $4.60 x 1.08 = 4.968

dividend in Y3 = 4.968 x 1.08 = 5.37

Dividend after Y3 = (5.37 x 1.03) / (0.14 - 0.03) = 50.24

Find the present value of these cash flows

4.60 / 1.14 + 4.968 / 1.14² + 5.37 / 1.14³ + 50.24 / 1.14³ = $45.39

To learn more about how to determine the value of a stock, please check: https://brainly.com/question/15710204

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