Star Light & Power increases its dividend 4.1 percent per year every year. This

Question

Star Light & Power increases its dividend 4.1 percent per year every year. This utility is valued using a discount rate of 12 percent, and the stock currently sells for $41 per share. If you buy a share of stock today and hold on to it for at least three years, what do you expect the value of your dividend check to be three years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Star Light & Power increases its dividend 4.1 percent per year every year. This utility is valued using a discount rate of 12 percent, and the stock currently sells for $41 per share. If you buy a share of stock today and hold on to it for at least three years, what do you expect the value of your dividend check to be three years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

D0(dividend ) =[ Current price (cost of equity -growth) ] /[1+growth]

                   = [41 (.12 - .041 ) ] /[1+.041 ]

                  =[41 * .079 ] / 1.041

                  = 3.239 /1.041

                 =$ 3.1114

value of dividend after 3 years - 3.114(1+.041)^3

                                          = 3.114 *1.12811

                                         =$ 3.5129 (approx 3.51 )

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