The Nikko Company\'s lastdividend was $1.50. The dividend growth rate is expecte
ID: 2770549 • Letter: T
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The Nikko Company's lastdividend was $1.50. The dividend growth rate is expected to beconstant at 15% for 3 years, after which dividends are expected togrow at a rate of 6% forever. If Nikko's required return(rs) is 11%, what is the company's current stockprice? The Nikko Company's lastdividend was $1.50. The dividend growth rate is expected to beconstant at 15% for 3 years, after which dividends are expected togrow at a rate of 6% forever. If Nikko's required return(rs) is 11%, what is the company's current stockprice? $36.69 $37.82 $38.99 $40.20 $41.40 The Nikko Company's lastdividend was $1.50. The dividend growth rate is expected to beconstant at 15% for 3 years, after which dividends are expected togrow at a rate of 6% forever. If Nikko's required return(rs) is 11%, what is the company's current stockprice? Question 22 answers $36.69 $37.82 $38.99 $40.20 $41.40Explanation / Answer
Nikko Company’s last dividend (D0) = $1.50
Nikko’s required return (R) = 11%
Dividend growth rate is expected to be constant at = 15% for 3years
Calculating Dividend for 3 years:
Dividend payment in 1st year = $1.50 *(1.15) = 1.725
Dividend payment in 2nd year = $1.725 *1.15 = $1.98375
Dividend payment in 3rd year = $1.98 *1.15 = $2.2813125
Dividend payment in 4th year = $2.2813125*1.06 = $2.418191
After 3 years the dividends are expected to grow at arate of 6% forever:
D4= D3 * (1+g)
D4= $2.2813125 * (1.06)
D4= $2.418191
P3 =D4 / (R-g)
P3 = $2.418191 / (0.11-0.06)
P3 = $ 48.36
Calculating Current Stock Price of the Company(P0):
P0 = [D1/(1+R) +D2/(1+R)2 + D3/(1+R)3+ P3/(1+R)3]
= [$1.725/(1.11) +$1.98375/(1.11)2 + $2.2813125/(1.11)3 +$48.36/(1.11)3]
= [$1.5540+ $1.61 + $1.6680 +$35.36]
= $40.20
Current Stock Price (P0) =$40.20
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