Waters Corporation has a stock price of $20 a share. The stock year end dividend

Question

Waters Corporation has a stock price of $20 a share. The stock year end dividend is expected to be $2 a share. The stock's required rate of return is 15 percent and the stocks dividend is expected to grow at the same constant rate forever. What is the expected price of the stock five years from now? Waters Corporation has a stock price of $20 a share. The stock year end dividend is expected to be $2 a share. The stock's required rate of return is 15 percent and the stocks dividend is expected to grow at the same constant rate forever. What is the expected price of the stock five years from now?

Explanation / Answer

P0= D1/(Ke-g)

20= 2/(.15-g)

g= 5%

Therefore P5= 20x1.05^5= $25.53

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