Homework Chapter 8 Graded Homework Score 0 of 1 pt Problem 8

Homework: Chapter 8 Graded Homework Score: 0 of 1 pt Problem 8.LO3.18 (similar to) An analyst has made the following estimate of Company Z\'s future dividends. In year 5, Company Z is expected to stop Sa 16 of 18 (0 complete) Hw Score: 0%, 0 of 18 Question Help fluctuating and begin paying a constant dividend of S 1.68. If the required rate of return is 14%, what is the stock\'s price? Year Dividend $2.47 $3.06 $1.38 $2.95 $1.68 The current price of Company Z\'s stock is s (Round to the nearest cent)

Solution

1)stock price= present value of dividneds
terminal value at year 5= 1.68/14%=12
Stock price=(2.47/(1.14^1))+(3.06/(1.14^2))+(1.38/(1.14^3))+(2.95/(1.14^4))+(1.68/(1.14^5))+(12/(1.14^5))
=14.30
2)stock price= dividend*(1+g)/(k-g)
=2.91*(1-4%)/(7%+4%)
=25.40
3)stock price= dividend*(1+g)/(k-g)
=3*(1-5%)/(25%+5%)
=9.50