Answer:
Stock Worth Today: $3,71 + $10,93 = $14,64
Stock Worth Today: Present Value (3 Next Years) + Present Value (Perpetuity)
Explanation:
We need to apply two financial methods to find the value of the shares today.
First, the Present value formula for the next 3 years, and for the rest we apply the Perpetuity formula, then to the result of Perpetuity we apply the Present Value because it's expressed in values of Year 4.
Present Value Formula : C/(1+r)^t to each cash dividends each year.
Perpetuity Formula : Dividend / r
- PV of the perpetuity = Periodic cash inflow/ Interest rate
Perpetuity = 1,60/ interest rate
Perpetuity = 1,60/ 0,10
Perpetuity = $16
The Perpetuity it's expressed at the moment of Year 4, we need to discount the Perpetuity to the current time:
Present Value Formula : C/(1+r)^t = 16/(1,10)^4 = $10,93
- PV of the the next 3 years dividends.
Present Value = 1,45/(1+0,1)^1 + 1,50/(1+0,1)^2 + 1,53/(1+0,1)^3
Present Value = 1,32 + 1,24 + 1,15
Present Value = $3,71
