Answer: $94.79
Explanation:
Given the following ;
Current dividend = $5.85 per share
Yearly increment in dividend = $10.75 per share
Number of years = 4
Time (t) = 1-4
Internal rate of return = 12%
Calculate the present value of share given the above details
Cashflow over four years
Year1 = $5.85 + $10.75 =$16. 60
Year2 = $16.60 + $10.75 = $27.35
Year3 = $27.35 + $10.75 = $38.10
Year 4 = $38.10 + $10.75 = $48.85
Present value (PV) =
Cashflow÷(1+IRR) + cashflow÷(1+IRR)^t + cashflow÷(1+IRR)^t + cashflow÷(1+IRR)^t
Present value (PV) =
Year1÷(1+IRR) + year2÷(1+IRR)^2 + Year3÷(1+IRR)^3 + Year4÷(1+IRR)^4
PV = $16.60/(1.12) + ($27.35)/(1.12)^2+ $38.10/(1.12)^3 + $48.85/(1.12)^4 = $94.79