POG, Inc. is expected to pay a dividend of $1 in one year. If the dividend growth rate is 2 percent forever and the required return is 10 percent, what should the stock be sold for five years from now?

Question

BlackTom AI · Accepted Answer

The question asks for the stock price five years from now given a dividend that grows at a constant rate.
First, identify the key inputs: D1 = $1, growth rate g = 2% = 0.02, required return r = 10% = 0.10.
With perpetual constant growth, the price at time t (P_t) is given by P_t = D_{t+1} / (r - g).
We need P_5, so we must find D_6, the dividend in year 6 (one year after year 5).
D_6 = D1 * (1 + g)^{5} = 1 * (1.02)^{5} ≈ 1.10408.
Then P_5 = D_6 / (r - g) = 1.10408 / (0.10 - 0.02) = 1.10408 / 0.08 ≈ 13.800999...,
which rounds to approximately $13.80.
Note on the missing options: the provided data does not include any answer choices to analyze, so there is no option-specific reasoning to evaluate. If options were present, each would be assessed for consistency with the dividend growth model and the implied assumptions (constant growth, correct use of D_{t+1}, and correct discounting with r - g).

BUSI_V 370 922 2025SS Quiz 4 Equities

POG, Inc. is expected to pay a dividend of $1 in one year. If the dividend growth rate is 2 percent forever and the required return is 10 percent, what should the stock be sold for five years from now?

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BUSI_V 370 922 2025SS Quiz 4 Equities

POG, Inc. is expected to pay a dividend of $1 in one year. If the dividend growth rate is 2 percent forever and the required return is 10 percent, what should the stock be sold for five years from now?

View Explanation

Log in for full answers

Similar Questions

ABC, Inc. just paid a dividend of​ $2. ABC expects dividends to grow at​ 10% annually forever. The return on shares like​ ABC, Inc. is typically around​ 12%. What is the most you would pay for ABC’s share?

ALP’s most recent dividend was​ $2.00 per share and is selling today for​ $70. The dividend is expected to grow at ​ 7% per year for the foreseeable future. Should you purchase the share if the market return is​ 10% on investments with comparable​ risk?

Using a dividend discount model, find the intrinsic value (price at time zero) for a firm whose expected dividend is $1.92 and growth in dividends for year 2, 3, and 4 is 23.2% and constant growth afterwards is 0.54%. The cost of equity is 9.21%. (Answer in 2 decimal places, 6.21 for $6.21).

Using a dividend discount model, find the intrinsic value (price at time zero) for a firm whose expected dividend is $1.37 and growth in dividends for year 2, 3, and 4 is 13.8% and constant growth afterwards is 1.42%. The cost of equity is 6.67%.

AWSM has just paid a dividend of $1.24 and is expected to increase the future dividends at a rate of 3% per year indefinitely. If you, as a shareholder, require 12% per year, what is the current price per share?

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