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: $16, $11, $7, and $4. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever.

If the required return on the stock is 11 percent, what is the current share price? (Do not round your intermediate calculations.)

rev: 09_18_2012, 06_27_2015_QC_CS-18560

$68.11

$66.73

$72.35

$76.36

$70.24

Far Side Corporation is expected to pay the following dividends over the next four years: $16, $11, $7, and $4. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever.

Explanation / Answer

$70.24 as shown below Statemnet showing Current Price Particulars Time PVf@11% Amount PV Cash inflows (Dividend)                            1.00                   0.9009          16.00                 14.41 Cash inflows (Dividend)                            2.00                   0.8116          11.00                   8.93 Cash inflows (Dividend)                            3.00                   0.7312            7.00                   5.12 Cash inflows (Dividend)                            4.00                   0.6587            4.00                   2.63 Cash inflows (Price)                          4.00                   0.6587          59.43                 39.15 Current Price of Stock                 70.24 P4= D5/ke-g P4 = 4*1.04/(11%-4%) P4 = 4.16/(7%) P4 = $59.43

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