Five years ago a XYZ stock paid a $1.15 dividend. Since then it has split two...

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Five years ago a XYZ stock paid a $1.15 dividend. Since then ithas split two for one once and three for two twice. XYZ currentearnings per share are $1.15, and the plowback ratio is 50%. Thedividends are expected to grow with their historical rate for thenext three years. Beginning year four, XYZ return on equity isexpected to be 9%. If the firm’s appropriate discount rate is 13.5%what the stock price should be?

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AnswerStock Price 928WorkingDividend paid five years ago adjusted for stock splits tilltoday 115122323    See Answer
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Five years ago a XYZ stock paid a $1.15 dividend. Since then ithas split two for one once and three for two twice. XYZ currentearnings per share are $1.15, and the plowback ratio is 50%. Thedividends are expected to grow with their historical rate for thenext three years. Beginning year four, XYZ return on equity isexpected to be 9%. If the firm’s appropriate discount rate is 13.5%what the stock price should be?

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