The gross pay, benefits and job expenses for two different employees are shown below. Employee A: gross pay $57,200, employee be
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Answer: <u><em>Current stock price () = $ 51.71</em></u>
Explanation:
First we'll calculate the dividends for the next 5 years and the respective Terminal value in year .
i.e. ,
= $ 2.30
=
(1 +
)
= $ 2.30 × ( 1 + 0%) = $ 2.30
=
(1 +
)
= $ 2.30 × ( 1 + 3%) = $ 2.36
=
(1 +
)
= $ 2.36 × ( 1 + 3%) = $ 2.43
=
(1 +
)
= $ 2.43 × ( 1 + 16%) = $ 2.819
=
(1 +
)
= $ 2.819 × ( 1 + 11%) = $ 3.129
∵ The growth rate after year = 11%
Required rate of return (r) = 15%
∴ Terminal value () =
Terminal value () =
Terminal value () = $ 86.85
Now, we'll compute the price per share :
Current stock price () =
where;
n = respective years
r = required rate of return
∴ Current stock price () =
Current stock price () = ( 2 + 1.78 + 1.59 + 1.611 + 1.55 + 43.18)
<u><em>Current stock price () = $ 51.71</em></u>