Fred Tibbits has made a detailed study of the denim clothing industry.  He's particularly interested in a company called Denhart Fashions that makes stylish denim apparel for children and teenagers.  Fred has done a forecast of Denhart's earnings and looked at its dividend payment record.  He's come to the conclusion that the firm will pay a dividend of $5.00 for the next two years followed by a year at $6.50.  Fred's investment plan is to buy Denhart now, hold it for three years and then sell.  He thinks the price will be about $75 when he sells.  What is the most Fred should be willing to pay for a share of Denhart if he can earn 10% on investments of similar risk?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
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Fred Tibbits has made a detailed study of the denim clothing industry.  He's particularly interested in a company called Denhart Fashions that makes stylish denim apparel for children and teenagers.  Fred has done a forecast of Denhart's earnings and looked at its dividend payment record.  He's come to the conclusion that the firm will pay a dividend of $5.00 for the next two years followed by a year at $6.50.  Fred's investment plan is to buy Denhart now, hold it for three years and then sell.  He thinks the price will be about $75 when he sells.  What is the most Fred should be willing to pay for a share of Denhart if he can earn 10% on investments of similar risk?

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