Lazario Motor Car Company produces some of the most luxurious and expensive cars in the world. The company typically authorizes
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Answer:
A share of this stock be worth$ 21.88 four years from now
Explanation:
Amount of annual dividend that will be paid the next year = $ 2.05
increase in dividend by 3.5% = = increase by a factor of 1.035
Since there is a 14% return, overall increase in dividend = = 9.857
<em>Note:</em>
<em>0.035 was obtained from </em><em>= 0.035 (dividend increase)</em>
<em>0.14 was obtained from </em><em> = 0.14 (percentage return required)</em>
over the next 20 years his new value of dividend will be
New value of dividend = $2.05 + 9.857 = 11.907
Converting to a percentage,
= 1.1907
Net dividend increase =
Dividend returns minus increase in dividend for 20 years is given as
14% - 3.5% = 10.5%
From the above, the
Worth of a share of his stock 4 years from now can be computed by
(dividend X Percentage increase in 20 years)/ net percent dividend increase + (increase in 4 years/ net dividend increase) X 100
+
× 100 =$21.88
∴ A share of this stock be worth$ 21.88 four years from now