The Herjavec Co. just paid a dividend of $1.65 per share on its stock. The divid
ID: 2785970 • Letter: T
Question
The Herjavec Co. just paid a dividend of $1.65 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. Investors require a return of 12 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 $
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 fourteen years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Stock price
Explanation / Answer
Current stock price=Dividend for next period/(Required return-Growth rate)
=(1.65*1.05)/(0.12-0.05)=$24.75
Price in 3 years=Current price(1+Growth rate)^3
=$24.75(1.05)^3=$28.65(Approx)
Price in 14 years=Current price(1+Growth rate)^14
$24.75(1.05)^14=$49.00(Approx).
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