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Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 13.5 percent. LTD’s recent dividend was $0.65. What is the value of Limited Brands stock when the required return is 15.5 percent?

Respuesta :

akindeleot

Answer:

When the required return is 15.5%, the Limited Brands stock will be at $36.8875

Explanation:

Required return i = 15.5% = 0.155

Future Growth Rate g = 13.5% = 0.135

Dividend Dâ‚€ = $ 0.65

so let say the value of stock at that time = X

X = Dâ‚€ (1 + g) / (i - g)

X = 0.65 * (1 + 0.135) / (0.155 - 0.135)

  = (0.65 * 1.135) / (0.155 - 0.135)

  = 0.73775 / 0.02

  = $36.8875

Therefore, when the  required return is 15.5%, the Limited Brands stock will be at $36.8875

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