Orwell Building Supplies just paid a dividend of $1

Finance Dec 23, 2020

Orwell Building Supplies just paid a dividend of $1.75. Its dividend growth rate is expected to be -1% for two years, 0% for two years, and then at a constant rate of 5% forever. The expected dividends for each of the next five years are: D. - $1.73;D- $1.71: D3 - $1.71: D4 - $1.71: Ds - $1.80 If Orwells required return is 12%, what is the expected price of the stock at the end of the fourth year (P.)? $27.00 $15.00 $25.71 $15.75

Expert Solution

Using Constant growth model,

Stock Price at the end of year 4 = 1.80/(0.12 - 0.05)

Stock Price = $25.71

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