Question

8. Jia's Fashions recently paid a $2 annual dividend. The company is projecting that its dividends will grow by 20 percent next year, 12 percent annually for the two years after that, and then at 6 percent annually thereafter. Based on this information, how much should Jia's Fashions common stock sell for today if her required return is 10.5%?

Answer 1

Answer:

the stock will sell for $59.16

Step-by-step explanation:

P0 =  2 * (1+0.2) / (1+0.105)  +  2 * (1+0.2) * (1+0.12)  /  (1+0.105)^2  +  

2*(1+0.2)*(1+0.12)^2 / (1+0.105)^3 +

[(2 * (1+0.2) * (1+0.12)^2 * (1+0.06) / (0.105-0.06))  /  (1+0.105)^3 ]

P0 = $59.16