Dividends on CCN corporation are expected to grow at a 9% per year. Assume that the discount rate on CCN is 12% and that the exp

Question

3 months ago

14

Dividends on CCN corporation are expected to grow at a 9% per year. Assume that the discount rate on CCN is 12% and that the exp

ected dividend per share in one year is $0.50. CCN has just paid a dividend, so the next dividend is the $0.50 to be paid one year from now. Calculate the expected price per share 14 years from now. Assume that a dividend has just been paid.

Business

1 answer:

marusya05 [3.7K] · Answer 1 · 2026-02-20T22:52:57+03:00

Answer:

P14 = $55.69545045394 rounded to $55.70

Explanation:

The dividend discount model (DDM) based on constant growth can help determine the current stock price. It assesses a stock’s price using the present value of the anticipated future dividends. The formula for determining today's price with a constant growth DDM is,

P0 = D1 / (r - g)

Where,

D1 represents the expected dividend for Year 1 or the following year

g denotes the constant growth rate for dividends

r signifies the discount rate or the required rate of return

To find the stock price today, we will utilize the dividend expected in Year 1. Consequently, to compute the stock price 14 years into the future, we calculate D15. D15 can be figured out as follows,

D15 = D1 * (1+g)^14

D15 = 0.50 * (1+0.09)^14

D15 = $1.67086351362 rounded to $1.67

Now applying the DDM formula for the price,

P14 = 1.67086351362 / (0.12 - 0.09)

P14 = $55.69545045394 rounded to $55.70