The Jackson-Timberlake Wardrobe Co. just paid a dividend of $2.00 per share on i
ID: 2790110 • Letter: T
Question
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $2.00 per share on its stock. The dividends are expected to grow at a constant rate of 4 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 12 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock priceExplanation / Answer
Current stock price=Dividend for next period/(Required return-Growth rate)
=(2*1.04)/(0.12-0.04)=$26
Stock price in 3 years=Current price(1+Growth rate)^3
=26(1.04)^3=$29.25(Approx)
Stock price in 12 years=Current price(1+Growth rate)^12
=26(1.04)^12=$41.63(Approx)
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