Mr. Sanderson works for a chain of clothing stores. He gathers information so he can figure out the best way to organize the sto
2 answers:
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Answer:
Price = $8.92
Explanation:
Dividend from yr1 to yr3 will be multiplied by 2 since it doubles per year;
D1 = $0.15*2 = $0.30
D2 = $0.30 *2 = $0.60
D3 = $0.60 *2 = $1.20
D4 (onwards) = $1.50
Next, find the present value (PV) of each dividend;
PV(D1) = 0.30/(1.138) = 0.2636
PV (D2) = 0.60/(1.138²)= 0.4633
PV(D3 ) = 1.20/ (1.138³) = 0.8142
PV(D4 onwards) = = 7.3754
To find the price of the stock today, sum up present values above;
= 0.2636 + 0.4633 + 0.8142 + 7.3754
Price = $8.92