Computation of current value of shares at the historic rate

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Reference no: EM139619

Calculation of current value of shares of a stock under given dividend growth rate.

General Cereal common stock dividends have been growing at an annual rate of 7% per year over the past 10 years. Current dividend (D0) is $1.70 per share. What is the current value of a share of this stock to an investor who requires a 12% rate of return if the following conditions exist:

1. Dividends are expected to continue growing at the historic rate for the foreseeable future.

2. The dividend growth rate is expected to increase to 9% per year.

3. The dividend growth rate is expected to decrease to 6.5% per year.

Reference no: EM139619

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