You have the opportunity to buy 800 shares of tata motors stock. its
In order to determine how much you should pay for 800 shares of Tata Motors stock, one must first calculate its current market price by considering both its last dividend paid and expected future earnings. This can be done using the Dividend Discount Model (DDM), which takes into account certain factors such as a stock’s most recent dividend payment (D₀) and expected rate of return (r).
In this instance, since the last dividend paid was $3.00 and the required rate of return is 18%, we can calculate the present value according to DDM: PV = D₀/r = 3.00/0.18 = 16.67.
However, since your expectations are that dividends will grow at 14% for two years before becoming constant at 5%, we need to also factor in these projected figures when calculating an appropriate purchase price. To do this, we would use the Constant Growth Model equation: PV= D₀ x [1/(1+r)] + g /( r – g ), where D₀ is again the last dividend paid ($3.00) while “g” represents its growth rate over time (14%). Plugging these values into our formula yields a result of 17.68 – meaning that an investment worth 17.68 per share would yield a return equal to your required rate of 18%. Therefore, if you wanted to buy 800 shares thenyou should expect to pay around $14156 today in order achieve this goal.