Rework Table 7.4 for horizon years 1, 2,3, and 10, assuming that investors expec

Question

Rework Table 7.4 for horizon years 1, 2,3, and 10, assuming that investors expect the dividend and the stock price to increase at only 6% a year and that each investor requires the same 12% expected return. Current dividends are $2.70 What value would Dritter place on the stock and what about Zehnte who has a 10-year horizon? (Do not round intermediate calculations. Round your answers to 2 decimal places.) PV (Terminal Horizon (years) (Dividends) Price) Value per Share PV 2.41 2 10 Reference links

Explanation / Answer

Horizon Years PV Dividends PV Terminal Price) Value per share 1 $2.41 $42.59 $45.00 2 $4.69 $40.31 $45.00 3 $6.85 $38.15 $45.00 10 $19.05 $25.95 $45.00 Year 1 Dividend $2.70 PV of Dividend = $2.70/(1+12%)^1 $2.41 Terminal Price = $2.70 x (1+6%)/(12%-6%) $47.70 PV of Terminal Price = $47.70/(1+12%)^1 $42.59 Year 2 PV Dividend =$2.70/1.12 + ($2.70 x (1+6%)^1/1.12^2) $4.69 Terminal Price = $2.70 x (1+6%)^2/(12%-6%) 50.562 PV of Terminal Price = $50.56/(1+12%)^2 $40.31 Year 3 PV Dividend =$2.70/1.12 + ($2.70 x (1+6%)^1/1.12^2)+($2.70 x (1+6%)^2/1.12^3) $6.85 Terminal Price = $2.70 x (1+6%)^3/(12%-6%) $53.60 PV of Terminal Price = $53.60/(1+12%)^3 $38.15 Year 10 PV Dividend =$2.70/1.12 + ($2.70 x (1+6%)^1/1.12^2)+($2.70 x (1+6%)^2/1.12^3)........($2.70 x (1+6%)^9/1.12^10) $19.05 Terminal Price = $2.70 x (1+6%)^10/(12%-6%) $80.59 PV of Terminal Price = $80.59/(1+12%)^10 $25.95

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.