The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.35 per share on i

Question

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.35 per share on its stock. The dividends are expected to grow at a constant rate of 3 percent per year indefinitely. Investors require a return of 10 percent on the company's stock. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current price $13.88 What will the stock price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price What will the stock price be in 15 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price

Explanation / Answer

a. Current price can be known using formula:

D0*(1+g) / (k-g)

=>$1.35*(1.03)/(0.10 - 0.03)

=>$1.3905 / (0.07)

=>$19.86......(rounded to two decimals).

b.Stock price in three years :

stock price also grows at the rate of 6% per annum

=> stock price after 3 years => current stock price * (1+growth rate)^3

=>$19.86* (1.03)^3

=>$21.70..............(rounded to two decimals).

c.stock price after 15 years = current stock price * (1+ growth rate)^15

=>$19.86 *(1 .03)^15.

=>$30.94....(rounded to two decimals)..

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