question archive The Millennium Motors Corporation intends to increase next year's dividend to €5 per share
The Millennium Motors Corporation intends to increase next year's dividend to €5 per share
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The Millennium Motors Corporation intends to increase next year's dividend to €5 per share. The forecasted stock price next year is €105. Equally risky stocks of other companies offer expected rates of return of 10 percent. a) What should common stock be sold for? b) Assume that the corporation's dividend and share price are expected to grow at a constant 5 percent per year. Calculate the present value of the stock using a 3 year horizon!
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1.
=5/1.1+105/1.1=100
2.
=5/1.1+5*1.05/1.1^2+5*1.05^2/1.1^3+5*1.05^3/(10%-5%)/1.1^3=100
