Common stock value: Constant growth Seagate Technology is a global leader in data storage solutions and a consistent dividend payer. From 2018 through 2022, Seagate paid the following per-share dividends: Year Dividend per share 2022 $2.54 2021 2.23 2020 1.84 2019 1.16 2018 1.55 Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual dividend growth rate. Use a 18% required rate of return to find the value of Seagate's stock immediately after it paid its 2022 dividend of $2.54.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Common stock value: Constant growth Seagate Technology is a global leader in data storage solutions and a consistent dividend payer. From 2018 through 2022, Seagate paid the following per-share dividends:
|
Year |
Dividend per share |
|
2022 |
$2.54 |
|
2021 |
2.23 |
|
2020 |
1.84 |
|
2019 |
1.16 |
|
2018 |
1.55 |
Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual
required
dividend of $2.54.
D2018 = 1.55 , D2022 = 2.54
g = the future constant annual dividend growth rate = the historical annual growth rate of seagate dividends = (D2022/D2018)1/4 -1 = (2.54 /1.55)1/4 -1 = 13.14%
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