Question

1. The Jackson-Timberlake Wardrobe Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on the company’s stock, what is the current price? What will the price be in three years? In 15 years?

Answer 1

Answer:

1.$34.4

2.$38.70

3.$61.95

Explanation:

1. Current price=D1/ (Required return-Growth rate)

= (2.15*1.04)/ (0.105-0.04) =$34.4

Therefore the answer is $34.4

We use the following formula:  

A=P (1+r/100) ^n

where

A=future value

P=present value

r=rate of interest

n=time period.

2. A=$34.4*(1.04) ^3

=$38.70(Approximately).

Therefore the answer is 38.70

3. A=$34.4*(1.04) ^15

=$61.95(Approximately).

Therefore the answer is $61.95