Homework SourseLohn Corporation is expected to pay the following dividends
Lohn Corporation is expected to pay the following dividends over the next four years: $12, $9, $8, and $3.50. Afterwards, the company pledges to maintain a constant 7 percent growth rate in dividends forever. If the required return on the stock is 14 percent,
what is the current share price?
Solution
Compute the current share price.
Therefore, the current share price is $52.45.
| Year | Cash Flows | Discount @14% | Present value of cash flows |
| 0 | 1 | ||
| 1 | 12 | 0.877193 | 10.526316 |
| 2 | 9 | 0.769468 | 6.9252078 |
| 3 | 8 | 0.674972 | 5.3997721 |
| 4 | 50 | 0.59208 | 29.604014 |
| (50/(0.14-0.07)) | |||
| Current Share Price | 52.45531 |
