The Oxford Heating Company has been very successful in the past four years. Over these years, it paid common stock dividend of $4 in the first year, $4.20 in the second year, $4.41 in the third year, and its most recent dividend was $4.63
The company wishes to continue this dividend growth indefinitely. What is the value of the company's stock if the required rate of return is 12 percent?
Constant growth rate, g = ($4.63 / $4.00 )1/3 - 1 = 0.04996, g = 5%
P = D5 / (r - g) = 4.63 (1 + 0.05 ) / (0.12 - 0.05 ) = $69.45
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