Question
Asked Oct 23, 2019
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The Brady Corporation just paid a dividend of $1.50. Its stock currently sells for $26.50. If investors require a 12% return on Brady's stock, and its rate of growth is constant 6%, what is the estimated value of Brady's stock two years from now?

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Expert Answer

Step 1

Calculation of Value of Stock two years from now:

The value of Stock two years from now is $23.73.

Excel Spreadsheet:

...
А
В
с
Dividends FVIF @ 12% PV of Dividends
$1.50
1
Year
2
1
1.12
$1.34
$1.59
$1.27
3
2
1.2544
4 Price in Year 2 $26.50
Value of Stock
$21.13
$23.73
5
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А В с Dividends FVIF @ 12% PV of Dividends $1.50 1 Year 2 1 1.12 $1.34 $1.59 $1.27 3 2 1.2544 4 Price in Year 2 $26.50 Value of Stock $21.13 $23.73 5

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