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Lawrence Industries most recent annual dividend was $1.80 per share and the firm's required
return is 11%.
If dividends are expected to grow by 5% annually for 3 years and follows by a 2% constant
growth rate in years 4 to infinity.
What is the valuation of Lawrence Industries stock today?
Solution
Annual dividend (d0) = $1.80
required rate of return = 11%
growth rate for 3 years = 5%
d3 = $1.80*(1+0.05)3
= $2.084
in 4th year growth rate = 2%
d4 = $2.084*(1+0.02) = 2.1254
price = D/(Ke - g)
= 2.2154/ (0.11 - 0.02)
= $23.62
valuation of Lawrence Industries stock today = $23.62

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Lawrence Industries most recent annual dividend was $1.80 per share .pdf

  • 1. Lawrence Industries most recent annual dividend was $1.80 per share and the firm's required return is 11%. If dividends are expected to grow by 5% annually for 3 years and follows by a 2% constant growth rate in years 4 to infinity. What is the valuation of Lawrence Industries stock today? Solution Annual dividend (d0) = $1.80 required rate of return = 11% growth rate for 3 years = 5% d3 = $1.80*(1+0.05)3 = $2.084 in 4th year growth rate = 2% d4 = $2.084*(1+0.02) = 2.1254 price = D/(Ke - g) = 2.2154/ (0.11 - 0.02) = $23.62 valuation of Lawrence Industries stock today = $23.62