Answer:
1.
The current stock price is $28.71
2.
The current stock price is $149.15
Explanation:
1.
We need to calculate the present value of the dividends with each growth
First calculate the dividend each year
Year _________________________ Dividend
1 _____( $1.8 x ( 1 + 8% )^1__________ $1.9440
2_____( $1.8 x ( 1 + 8% )^2__________ $1.1664
3_____( $1.8 x ( 1 + 8% )^3__________ $2.2675
4_____( $2.2675 x ( 1 + 7% )________ $2.4262
5_____( $2.4262 x ( 1 + 6% )________ $2.5718
6_____( $2.5718 x ( 1 + 5% )_________ $2.7004
Calculate the present value of each years dividend
Year _________________________ present value
1 _____( $1.9440 / ( 1 + 12% )^1 __________ $2.1773
2_____$1.1664 / ( 1 + 12% )^2___________ $0.9298
3_____$2.2675 / ( 1 + 12% )^3___________$0.7118
4_____$2.4262 / ( 1 + 12% )^4___________$1.5419
5_____$2.5718 / ( 1 + 12% )^5___________ $1.4593
6_____$2.7004 / ( 12% - 5% ) / ( 1 + 12% )^5_$21.8897
Total _____________________________ $28.7098
Hence priec of the stock is $28.71
2.
First calculate dividend of Year 6
Dividend = EPS x Payout ratio = 23 x 80% = $18.40
Present value = $18.4 / ( 12% - 5% ) / ( 1 + 12% )^5 = $149.15
