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Current forecasts for Blues Limited is to pay dividends over the next four years, as follows: Year 1 2 3 4 Dividends $1.20 $1.36 $1.52
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Current forecasts for Blues Limited is to pay dividends over the next four years, as follows:
Year | 1 | 2 | 3 | 4 |
Dividends | $1.20 | $1.36 | $1.52 | $1.63 |
At the end of four years you anticipate selling the stock at a market price of $16.47.
Required:
a) Using the dividend valuation model, compute the current price of the stock given a 15% discount rate.
b) Suppose that Blues Limited shares is currently trading at $11.50 would you buy the stock? Provide your reasoning.
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