Maurer, Inc., has an odd dividend policy. The company has just paid a dividend of $6 per share and has announced that it will increase the dividend by $5 per share for each of the next five years, and then never pay another dividend. If you require a return of 15 percent on the company’s stock, how much will you pay for a share today?

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Asked Oct 2, 2019
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Maurer, Inc., has an odd dividend policy. The company has just paid a dividend of $6 per share and has announced that it will increase the dividend by $5 per share for each of the next five years, and then never pay another dividend. If you require a return of 15 percent on the company’s stock, how much will you pay for a share today? 

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Expert Answer

Step 1

Calculation of Price of Share today:

The price of share today is $65.75.

Excel Spreadsheet:

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В C D 1 Year Dividends FVIF@ 15% PV of Dividends $6 2 0 $11 $9.57 3 1 1.1500 $16 4 2 1.3225 $12.10 $21 $13.81 3 1.5209 $26 $14.87 6 4 1.7490 $31 2.0114 $15.41 7 5 Price of Share today $65.75

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