Hamilton Landscaping's dividend growth rate is expected to be 25% in the next year, drop to 12% from Year 1 to Year 2, and drop to a constant 3% after Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.95 and its stock has a required return of 11.5%. a. What is Hamilton's estimated stock price today? Do $2.95 11.5% 90,1 25% Short-run g; for Year 1 only. 91,2 12% Short-run g; for Year 2 only. GL 3% Long-run g; for Year 3 and all following years. g 25% 12% 3% + Year Dividend 0 1 3 PV of dividends and PV of horizon value = Po = D3 = Horizon value = P₂- a. 2 What is Hamilton's estimated stock price for Year 1? P1 P₁ P1 P2 + D2 (1+rs)
Hamilton Landscaping's dividend growth rate is expected to be 25% in the next year, drop to 12% from Year 1 to Year 2, and drop to a constant 3% after Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.95 and its stock has a required return of 11.5%. a. What is Hamilton's estimated stock price today? Do $2.95 11.5% 90,1 25% Short-run g; for Year 1 only. 91,2 12% Short-run g; for Year 2 only. GL 3% Long-run g; for Year 3 and all following years. g 25% 12% 3% + Year Dividend 0 1 3 PV of dividends and PV of horizon value = Po = D3 = Horizon value = P₂- a. 2 What is Hamilton's estimated stock price for Year 1? P1 P₁ P1 P2 + D2 (1+rs)
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 6P
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Transcribed Image Text:Hamilton Landscaping's dividend growth rate is expected to be 25% in the next year, drop
to 12% from Year 1 to Year 2, and drop to a constant 3% after Year 2 and all subsequent
years. Hamilton has just paid a dividend of $2.95 and its stock has a required return of
11.5%.
a.
What is Hamilton's estimated stock price today?
Do
$2.95
11.5%
90,1
25%
Short-run g; for Year 1 only.
91,2
12%
Short-run g; for Year 2 only.
GL
3%
Long-run g; for Year 3 and all following years.
g
25%
12%
3%
+
Year
Dividend
0
1
3
PV of dividends and
PV of horizon value
=
Po
= D3
= Horizon value
=
P₂-
a. 2 What is Hamilton's estimated stock price for Year 1?
P1
P₁
P1
P2
+
D2
(1+rs)
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