Computation of compound annual dividend growth rate

Reference no: EM139611

Calculation of compound annual dividend growth rate and current stock price

The chairman of Heller Industries told a meeting of financial analysts that he expects the firm's earnings and dividends to double over the next 6 years. The firm's current (that is, as of year) earnings and dividend per share are $4 and $2, respectively.
1) Estimate the compound annual dividend growth rate over the 6-year period.
2) Assuming the forecasted growth rate in (a) will go on forever, how much is this stock worth today if investors require an 18% rate of return?
3) Why might the stock price calculated in (b) not represent an accurate valuation to an investor with an 18% required rate of return?

Reference no: EM139611

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