Find the expected stock price

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Reference no: EM131993164

(a) BP Inc. is expected to pay a dividend of $1.50 in time 1 and $2 in time 2. For time 3 and in perpetuity thereafter, the dividend will increase at 6% per year. Find the expected stock price if the discount rate is 10%. Show your work.

PV = 1.50/1.1 + 2/(.10-.06)/1.1 = 46.82

(b) If BP is expected to earn $6 million in time 1 and BP has 3,000,000 shares outstanding, find the present value of growth opportunities (PVGO). Show your work.

No growth has EPS = 6M/3M = 2

No growth PV = 2/.1 = $20

PVGO = 46.82 - 20 = 26.82

Reference no: EM131993164

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