Great Pumpkin Farms just paid a dividend of $3.10 on its stock. The growth rate
ID: 2653115 • Letter: G
Question
Great Pumpkin Farms just paid a dividend of $3.10 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for the next three years, and a return of 9 percent thereafter. What is the current share price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Great Pumpkin Farms just paid a dividend of $3.10 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for the next three years, and a return of 9 percent thereafter. What is the current share price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Price = (3.29 / 1.11) + (3.48 / 1.112)) + (3.69 / 1.113)) + (3.91/(1.113).(1.13)) + (4.15 / (1.113).(1.132)) +
(4.40 / (1.113).(1.133)) + (4.66 / (1.113).(1.133).(1.09)) + _____________________
= 8.49 + 2.53 + 2.38 + 2.23 + ((4.66(1.06) / ((1.113).(1.133).(1.09)
1-(1.06/1.09)
= 15.63 + 83.57
= $99.20
Year Dividend Amount 1 3.10 (1.06)1 3.29 2 3.10 (1.06)2 3.48 3 3.10 (1.06)3 3.69 4 3.10 (1.06)4 3.91 5 3.10 (1.06)5 4.15 6 3.10 (1.06)6 4.40 7 3.10 (1.06)7 4.66Related Questions
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