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Storico Co. just paid a dividend of $2.25 per share. The company will increase it's dividend...

Question:

Storico Co. just paid a dividend of $2.25 per share. The company will increase it's dividend growth rate by 5 percent points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Storico stock is 12 percent, what will a share of stock sell for today?

Dividend Growth Rate:

Dividend growth rate is widely used in the dividend discount model. The dividend discount is a pricing model which could help in determining the value of the stock price after considering the estimated future dividend.

Answer and Explanation:

The price per share is $33.75

{eq}\displaystyle \text{Price per share } = \frac{D1}{( r - g)} {/eq}

  • D1 is the value of next year's dividend
  • r is the...

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Homemade Dividends: Definition & Examples

from Finance 101: Principles of Finance

Chapter 16 / Lesson 2
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