Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781337587563
Author: MOYER, R. Charles; McGuigan, James R.; Rao, Ramesh P.
Publisher: Cengage Learning
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Question
Chapter 7, Problem 24P
Summary Introduction
To determine: Current value of stock.
Given information:
Current rate of dividend payment is $3 per share
Expected growth of dividend is 15% (for next 3 years)
Thereafter growth is 10% per year
Expected increase in stock price is 40%
Calculation of current value of stock:
Year | Earnings ($) | Dividends ($) |
0 | 3 | 0.00 |
1 | 3(1.15) | 3.45 |
2 | 3.45(1.15) | 3.968 |
3 | 3.97(1.15) | 4.563 |
4 | 4.56(1.10) | 5.019 |
P4 = 1.4(P0)
Note the beginning of year 5 is the same as the end of year 4 in
Here,
FV refers to
i is interest rate,
n is number of periods,
PVIF refers to a used for calculation.
Therefore, the value of stock will be $115.73
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Chapter 7 Solutions
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