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Company Q has just paid a dividend of $1.40 per share. Its dividend is expected to grow at 5% per year perpetually. If the required return is 10%, what is the value of a share in company Q?

  • Finance - ,

    The formula is:

    P0 = sum( (DPS*(1+g)^t) / (1+r)^t)

    where g is expected growth (.05), r is the required rate of return (.1), and t goes from 1 to infinity.

    Unfortunately, my math skills have long since faded away; I am not confident in my ability to do infinite series.
    But I cheated and used an excel spreadsheet. if t goes from 1 to inf, I get P0=29.4.

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