Quantitative problem 10: Macro systems just paid an annual dividend of $0.32 per share. Its dividend...

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Quantitative problem 10: Macro systems just paid an annual dividend of $0.32 per share. Its dividend is expected to double for the next four years. (D1 through D4), after which it will grow at a more modest pace of 1% per year. If the required return is 13%, what is the current price?

Quantitative problem 8: Suppose Microsoft, Inc., is trading at $27.29 per share. It pays an annual dividend of $0.32 per share, which is double last year’s dividend of $0.16 per share. If this trend is expected to continue, what is the required return on Microsoft?

Robert · Accepted Answer

P0 = D1/(R-G) 
D1 - Dividend at t =1 
R - Required rate 
G - Growth rate 
Problem 10: 
D1 = 0.32*2 = 0.64 
D2 = 0.64*2 = 1.28 
D3 = 1.28*2 = 2.56 
D4 = 2.56*2 = 5.12 
D5 = 5.12*1.01 
P4 = D5/(R-g) = 5.12*1.01/(0.13-0.01) = 43.09 
Discount the future cashflows to find the present value:

Quantitative problem 10: Macro systems just paid an annual dividend of $0.32 per share. Its dividend is expected to double for the next four years. (D1 through D4), after which it will grow at a more...

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