Darden restaurants is expected to pay annual dividends of $1.90 and $2.10 over the next two years, respectively. after that, the company expects to pay a constant dividend of $2.30 a share. what is thevalue of this stock at a required return of 16 percent? 0 hint: you will need to use general dividend discount model and the dividend discount model withno dividend growth to answer this question.‘ l ‘ $12.44. : . $14.60‘ l ‘ $13.89‘ l ‘ $13.30

$13.89

Explanation:

The computation of the value of stock is shown below:

Year Dividend Present value factor at 16% Present value  

1         $1.90                0.862                               $1.64

2        $2.10                 0.743                               $1.56

3        $2.30

Price $14.375             0.743                               $10.68

The price is computed below:

= $2.30 ÷ 16% = $14.375

Total present value $13.89

The present value factor is computed below:

= 1 ÷ (1 + rate) ^ years

For Year 1 = 1 ÷ 1.16^1 = 0.862

For Year 2 = 1 ÷ 1.16^2 = 0.743

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