Help with this question add formula please ABLE 74 a of Bve

Help with this question, add formula please ABLE 7.4 a of Bve i Hortzon tyears PV idvidend PV (terminal price)Value per Share $268 72.32 974 67 25 52.13 3624 25 19 12.17 1.98 $75 75 ? 75 75 75 75 75 7.75 10 20 30 8.76 4981 62.83 302 100 Rework Jabie 4 for horizon year 5%oyear wdthat each investor requres the same t25 expected netun 12.3, and 10, assuming thait investors expect the dividend and the stock price to increase at what value woud Driner place onthe stock and what tout Zehn who has a ?year horror, pe not round ntem ediate celculations. Round your answers to 2 decimal places Look at Table 7.4, which continues the Blue Skies example for various time horizons, still assuming that the dividends are expected to increase at a steady 8% compound rate. The expected price increases at the same 8% rate. Each row in the table represents a present value calculation for a different horizon year. Note that total present value does not depend on the investment horizon. Figure 7.4 presents the same data in a graph. Each column shows the present value of the dividends up to the horizon and the present value of the price at the horizon. As the horizon recedes, the dividend stream accounts for an increasing proportion of present value but the total present value of dividends plus terminal price always equals $75.

Solution

Answer )

The terminal value (TV) = (FCFn x (1 + g)) / (K – g)

Where:
FCF = free cash flow
g = perpetual growth rate of FCF
K = expected return

In the table 7.4 ,

Year 1 , FCF=Dividend =2.68 , g = 8% , K =12% TV= 2.68*(1+0.08)/ (.12-0.08) = $ 72.32.

Year 2 , Dividend = 2.68 * (1+g) = 2.68 *1.08 = 2.894 ,

so present value of dividend = Dividend for 1 year + PV ( dividend of 2nd year)

= 2.68 + 2.894/ 1.12 = 5.26

So, increase in dividend value = 5.26 - 2.68 = 2.58

=> change in terminal value = $ 72.32 - 2.58 = $ 69.74

And calculated in same manner for further years .

Now, As there is change in g = 6% , new calculation will be:

Year 1 , FCF=Dividend =2.68 , g = 6% , K =12% TV= 2.68*(1+0.06)/ (.12-0.06) = $ 47.32

Value per share = TV + dividend = $ 50

Year 2 , Dividend = 2.68 * (1+g) = 2.68 *1.06 = 2.84 ,

so present value of dividend = Dividend for 1 year + PV ( dividend of 2nd year)

= 2.68 + 2.84/ 1.12 = 5.22

So, increase in dividend value = 5.22 - 2.68 = 2.54

=> change in terminal value = $ 47.32 - 2.54 = $ 44.78

Value per share = TV + dividend = $ 50

Year 3 , Dividend = 2.84 * (1+g) = 2.84 *1.06 = $3 ,

so present value of dividend = PV ( dividend till 2nd year) + PV (dividend of 3rd year)

= 5.22 + 3/ 1.12 = 7.90

So, increase in dividend value = 7.90- 5.22 = 2.68

=> change in terminal value = $ 44.78 - 2.68 = $ 42.10

Value per share = TV + dividend = $ 50

Year 10 ,

Dividend = 2.68 * (1+g)^10 = 2.68 *(1.06)^9 = 4.54 ,

so present value of dividend = PV ( dividend from 1 to 10 year) ..... in in excel below

= 21.18

So, increase in dividend value = 21.18 - 7.90 = 13.28

=> change in terminal value = $ 42.10 - 13.28 = $ 28.82

Value per share = TV + dividend = $ 50

New table will be .

PV of dividend calculation excel.

Year	PV (dividend)	PV ( terminal value)	Value per share
1	$2.68	$47.32	$50.00
2	$5.22	$44.78	$50.00
3	$7.90	$42.10	$50.00
10	$21.18	$28.82	$50.00