Question 8 of 10 value 1000 points Maloney Inc has an odd di

Question 8 (of 10) value 10.00 points Maloney, Inc., has an odd dividend policy. The company has just paid an annual dividend of $5 per share and has announced that it will increase the dividend by $4 per year for each of the next five years, and then never pay another dividend. If you require an annual return of 14 percent on the company\'s stock, how much will you pay for a share today? Note: the $5 dividend has already been paid, so you should ignore it in the present value calculations. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) Current share prices References eBook & Resources Worksheet Leaning Objective: 08-01 How stock prices depend on future dividends and dividend growth Difficulty: Intermediate Section. 8.1 Common Stock Valuation

Solution

Maloney Inc. Year Dividend P.V Factor P.V of Dividend 0 $       5.00 1 $       9.00 0.8772 $                      7.89 2 $    13.00 0.7695 $                    10.00 3 $    17.00 0.675 $                    11.48 4 $    21.00 0.5921 $                    12.43 5 $    25.00 0.5194 $                    12.99 $                    54.79