Ackert Company’s last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm’s required return (rs) is 12.0%. What is the best estimate of the current stock price?

Finance problems – ackert company’s and more

This dividend growth model can help you estimate the current stock price for Ackert Company. This model calculates the dividend received, expected dividend growth rates for the specified time period, and investor return requirements (rs).

Based on the information provided, Ackert Company’s last dividend was $1.55 and is expected to grow at a constant rate of 1.5% for 2 years after which dividends are expected to grow at 8.0% forever and its required return (rs) is 12%. To estimate Ackert Company’s current stock price, we would need to calculate the present value of all future dividends that will be generated by investing in this stock and discount them back today at rs.

The Gordon Growth Model can be used to estimate the amount of that sum.
P = D1 / (r – g), where P = current stock price, D1 = upcoming dividend payment, r = required return (rs) and g = expected growth rate beyond two years (8%). Applying these values yields: P= ($1.55 x 1 + 0.015 )/ (.12- .08) or P=$68.17 Therefore, based on these inputs, Ackert Company’s current stock price should be approximately $68.17 per share.

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