Question 7 (of 10) value: 1.00 points Problem 8-17 Nonconstant Dividends LOT Loh

Question

Question 7 (of 10) value: 1.00 points Problem 8-17 Nonconstant Dividends LOT Lohn Corporation is expected to pay the following dividends over the next four years. $11. S7, S6, and $3. 50 Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 14 percent what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places. e.g. 32.16.) t share price HintsReferenceseBook & Resources

Explanation / Answer

Step-1:Present value of next four years dividend Year Dividend Discount factor Present value 1 $    11.00      0.2366 $       2.60 2 $       7.00      0.3996 $       2.80 3 $       6.00      0.4556 $       2.73 4 $       3.50      0.6322 $       2.21 Total $    10.35 step-2:Present Value of after year 4's dividend Present value of after year 4's dividend = (D4*(1+g)/(Ke-g))*DF4 Where, = (3.50*(1+0.04)/(0.14-0.04))*0.6322 D4 $       3.50 = $    23.01 g 4% Ke 14% DF4      0.6322 Step-3:Present value of all dividends Present Value = $    10.35 + $    23.01 = $    33.36 As per dividend discount model, price of stock is the present value of dividends. So, Price of Stock is $ 33.36

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.