bjorn company just paid annual dividend of 2

Finance Jan 13, 2021

bjorn company just paid annual dividend of 2.50 per share. the required rate of return in 12 percent and dividends are projected to grow at a constant rate of 5 percent indefinitely. what will the stock price be in 15 years ( do not round intermediate calculations and round your answer to 2 decimal places)

Expert Solution

P = D0 ( 1 + g)/ (ke-g)

Where, D0 is Dividend paid

g is growth rate

Ke is rate of return

P1 = D1 × (1+g)/ (ke-g)

P15 = D15 × (1+g)/(0.12 - 0.05)

P15 = D0 × (1+0.05)^16 / 0.07

P15 = 2.5 × (1.05)^16/0.07

P15 = (2.5 × 2.1829)/0.07

P15 = 5.45725 / 0.07

Price is 77.97 or 77.96

Stock price in 15years is 77.97

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