What is the Current Miller Stock Price? What is the Current Miller Stock Price?

Question

What is the Current Miller Stock Price?

What is the Current Miller Stock Price? Miller Company just paid a dividend of $1.55 per share. The required rate of return on Miller stock is 10.3% per year. Miller anticipates the following yearly growth rates in dividends. Starting in year 8, the dividend will grow at 3% per year indefinitely. HINT: you may find it helpful to calculate dividends and cash flows to help you solve this problem, but you are free to solve however you wish as long as you use Excel

Explanation / Answer

Answer:-

66.79440596

calculate dividend = (Do * growth rate) + Do

D0 = previous year dividend

year 1   = ( $ 1.55 * 25%) + $ 1.55     = $ 1.935

year 2 = ($ 1.935 * 25%) + $ 1.935   = $ 2.421

and so on

calculate cash flow(current stock price)

V = D1 / Ke - g

V = valution of equity shares(stock price)

D1 = dividend per year

Ke = required return

g = constand growth rate (3%) given

year 0 = V = 1.55 / (10.30% - 3%)     = $ 21.23

year 1 = V   = $ 1.937 / (10.30% - 3%)   = $ 26.54

and so on.

year growth rate dividend cash flow (required return 10.30%) 0 $1.55 21.23287671 1 25% 1.9375 26.54109589 2 25% 2.421875 33.17636986 3 25% 3.02734375 41.47046233 4 16% 3.51171875 48.1057363 5 14% 4.003359375 54.84053938 6 10% 4.403695313 60.32459332 7 7.50% 4.733972461 64.84893782 8 3% 4.875991635

66.79440596

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