Homework Sourse13 Constantgrowth dividend discount model Using the followin
13. Constant-growth dividend discount model: Using the following data provided, calculate the current price of these stocks assuming an investor required rate of return of 9%.
Company
Current year’s dividend
Dividend growth rate
Current price
Cabo Technology
$0.90
5.0%
Cellular Systems
$3.25
3.0%
Candida Consultants
$5.38
6.0%
Coliseum Theaters
$12.75
7.0%
| Company | Current year’s dividend | Dividend growth rate | Current price |
| Cabo Technology | $0.90 | 5.0% | |
| Cellular Systems | $3.25 | 3.0% | |
| Candida Consultants | $5.38 | 6.0% | |
| Coliseum Theaters | $12.75 | 7.0% |
Solution
Current price=D1/(Required return-Growth rate)
| Company | Current price |
| Cabo Technology | (0.9*1.05)/(0.09-0.05)=$23.625 |
| Cellular Systems | (3.25*1.03)/(0.09-0.03)=$55.792(Approx) |
| Candida Consultants | (5.38*1.06)/(0.09-0.06)=$190.093(Approx) |
| Coliseum Theaters | (12.75*1.07)/(0.09-0.07)=$682.125 |
