Fred Tibbits has made a detailed study of the denim clothing industry. He\'s par

Question

Fred Tibbits has made a detailed study of the denim clothing industry. He's particularly interested in a company called Denhart Fashions that makes stylish denim apparel for children and teenagers. Fred has done a forecast of Denhart's earnings and looked at its dividend payment record. He's come to the conclusion that the firm will pay a dividend of $5.00 for the next two years followed by a year at $6.50. Fred's investment plan is to buy Denhart now, hold it for three years and then sell. He thinks the price will be about $75 when he sells.

What is the most Fred should be willing to pay for a share of Denhart if he can earn 10% on investments of similar risk?

Explanation / Answer

69.92 dollars

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