first find the dividends for the first three years. Discount them by an appropri
ID: 2772220 • Letter: F
Question
first find the dividends for the first three years.
Discount them by an appropriate interest rate over the appropriate time period in other words dividend them by (1+Rs)^ N. Next you have to find the present value of the terminal (horizon) value. This is based on the value once the stock turns into a constant growth stock. First, use the formula D4/(Rs-G) to find P^3.
Once you have that figure, find the present value of that terminal value. Add the present value of all the cash flows together to compute the P^0.
Last Dividend Paid (D0) = $1.15
Required return on Stock (Rs) = 13.4%
Growth Rate Year 1 (G1) = 20%
Growth Rate Year 2 (G2) = 20%
Growth rate Year 3 (G3) = 10%
Growth Rate Year 4+ forever = 8% constant
What is the present value (P0) of this set of cash flow streams? Show all work for full credit.
Please show me or explian how to do each part!! im very confused, thank you!
Explanation / Answer
Last Dividend Paid (D0) = $1.15
Required return on Stock (Rs) = 13.4%
Growth Rate Year 1 (G1) = 20%
Growth Rate Year 2 (G2) = 20%
Growth rate Year 3 (G3) = 10%
Growth Rate Year 4+ forever = 8% constant
Calculation Dividends Per share Present value factor Present value Year 1 =1.15*1.2 1.38 0.8814 1.22 Year 2 =1.38*1.2 1.66 0.7769 1.29 Year 3 =1.66*1.1 1.83 0.6851 1.25 Year 4 =+(1.83*1.08)/(0.1345-0.08) 36.26 0.6042 21.91 Present value 25.66Related Questions
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