2. Vogel AG is expected to pay a dividend next year (t=1) of D1= €3.00 per...

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2. Vogel AG is expected to pay a dividend next year (t=1) of D1=€3.00 per share. The stock has an equity cost of capital orrequired return of 10% per year. The current stock price is€50/share.
A. Calculate this firm’s expected future annual growth rate ofdividends.
B. Calculate this firm’s expected stock price next year (t=1)after the dividend D1 has been paid out.

Answer & Explanation Solved by verified expert

4.2 Ratings (565 Votes)

2)

A.	Annual growth rate	4%

Working:

As per dividend discount model,

Required return	=	(D1/P0)+g	Where,
0.10	=	(3.00/50.00)+g	D1	€ 3.00
0.10	=	0.06+g	P0	€ 50.00
g	=	0.04	g	growth rate	?


B.	Stock price	€ 52.00

As per dividend discount model,
			Where,
Stock price	=	D1*(1+g)/(K-g)	D1	€ 3.00
(t1)	=	3.00*(1+0.04)/(0.10-0.04)	g	0.04
	=	€ 52.00	K	0.10

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2. Vogel AG is expected to pay a dividend next year (t=1) of D1=€3.00 per share. The stock has an equity cost of capital orrequired return of 10% per year. The current stock price is€50/share.A. Calculate this firm’s expected future annual growth rate ofdividends.B. Calculate this firm’s expected stock price next year (t=1)after the dividend D1 has been paid out.