Homework Chapter 8 Graded Homework Score 0 of 1 pt 5 of 18 1

Homework: Chapter 8 Graded Homework Score: 0 of 1 pt 5 of 18 (15 complete) Hw Score: 77.78%, 14 of 18 Problem 8.LO3.30 (similar to Question Help The last dividend paid by Abbot Company was S346. Dividends are expected to grow at 15% for the next 2 years, then grow at a constant 4% indefinitely. If the required return is 5%, what should be the current stock price? The current stock price should be $ 350.15. (Round to the nearest cent)

Solution

The most you would pay for the stock is $19.38 Statement showing Cash flows Particulars Time PVF 11% Amount PV Cash flows = Dividend                      1.00                 0.9009                      0.89                         0.80 Cash flows = Dividend                      2.00                 0.8116                      0.89                         0.72 Cash flows = Price                      2.00                 0.8116                    22.00                      17.86 Present value of Cashflows                      19.38