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9. OMG Corporation just paid a $1.50 annual dividend on each share. It is planning on increasing its dividend by 15 percent a year for the next 4 years. The corporation will then decrease the growth rate to a rate of 4 percent per year, and keep it that way indefinitely. The required rate of return is 7.00 percent. Calculate the current value of one share of this corporation's stock.

Respuesta :

The current value of one share of the corporation's stock is $76.59.

What is the value of the stock?

The two-stage dividend model would be used to determine the value of the stock.  In the two-stage dividend growth model, the first stage is characterised by a fast growth rate which becomes steady in the second stage.

  • Dividend in Y1 = 1.50 x 1.15 = 1.725
  • Dividend in Y2 = 1.50 x 1.15^2 = 1.98
  • Dividend in Y3 = 1.50 x 1.15^3 = 2.28
  • Dividend in Y4 = 1.50 x 1.15^4 = 2.62
  • Dividend in Y4 = (2.62 X 1.04) / (0.07 - 0.04) = 90.95

Find the present value of these cash flows

Value of the stock = $76.59

To learn more about the two stage dividend model, please check: https://brainly.com/question/26564273

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