Question 8 6 pt Sunshine Company operates retail sunglass kiosks in shopping mal

Question

Question 8 6 pt Sunshine Company operates retail sunglass kiosks in shopping malls. Below is information related to the company. Required rate of return on equity (RE) is 8.5%. Assuming that steady-state growth in year 2022 and beyond will be 4% (ie, g). 201Z 2018 2019 2020 2021 2022 $412 $478 $636 $827 $950 $1,284 1,512 Dividends to Common Equity (in thousands) Common Shares Outstanding (in thousands) Calculate the present value of continuing value of Sunshine at the start of 2022 using the perpetuity-with-growth model. $21.488.2 $1.40328 $18.976 $2.51223

Explanation / Answer

Solution :

The present value of continuing value of sunshine at the start of 2022 using perpetuity with growth model will be :

PV = D1/r-g

where PV is the present value

D1 - Dividend or coupon period 1

r - the discount rate

g- a Growth rate

total dividend /no of shares each year

and then divide the dividend / Expected return - growth rate for each year

we shall get the present value = D/r- g + D1 /r-g +D2/r-g +...... D5/r-g

= 21,488.2

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