Value per share

Value per share

Assume that the average firm in your company’s industry is expected to grow at a constant rate of 5.5% and its dividend yield is 8.3%. Your
company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its
earnings and dividends will grow at a rate of 44% this year and 29% the following year, after which growth should match the 5.5% industry average rate. The
last dividend paid (D₀) was $2.0. What is the value per share of your firm’s stock?

• First, calculate r using the equation:

r = D(1)/P(0) + g

• Second, refer to chapter notes, section 7 on non-constant growth model.
• There’s an Excel example on D2L right after the chapter notes.

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