Apocalyptica Corporation is expected to pay the following dividends over the nex

Question

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.40, $16.40, $21.40, and $3.20. Afterwards, the company pledges to maintain a constant 6.00 percent growth rate in dividends, forever.

If the required return on the stock is 9 percent, what is the current share price?

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.40, $16.40, $21.40, and $3.20. Afterwards, the company pledges to maintain a constant 6.00 percent growth rate in dividends, forever.

Explanation / Answer

current share price = 5.4/1.09 + 16.4/1.09^2 + 21.4/1.09^3 + (3.2/(9%-6%))/1.09^3 = $117.65

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