Far Side Corporation is expected to pay the following dividends over the next fo

Question

Far Side Corporation is expected to pay the following dividends over the next four years: $11 in year 1, $8 in year 2, $5 in year 3, and $2 in year 4. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 12 percent, the current share price is

Far Side Corporation is expected to pay the following dividends over the next four years: $11 in year 1, $8 in year 2, $5 in year 3, and $2 in year 4. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 12 percent, the current share price is

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Current Share Price = 11/(1+.12)^1 + 8/(1+.12)^2 + 5/(1+.12)^3 + 2/(1+.12)^4 + 2*(1+.05)/(.12 -.05)*(1+.12)^4 = $40.09

Answer is $40.09

Thanks.

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