What should current Kroger stock’s price be if Kroger pays $1.50 as dividend per stock for this year? Kroger expects future dividend to grow at 4% constantly for the first two years from now then to grow at 2% constantly for the rest of firm’s life. The required rate of return for stock is 10%.
1. Find Kroger’s price at year 2 (P ^_2) when dividend becomes constant at 2%, using discount dividend model
2. Find Kroger’s price at year 0 (P ^_0), using dividends at year 1 and 2 and P ^_2 as future cash flow discounted by rs
3. Find dividend yield and capital gain for year 1
4. Find dividend yield and capital gain for year 3