Answer:
$74.62
Explanation:
Div₀ = $1.09
expected growth $0.19 per year
Div₁ = $1.28
Div₂ = $1.47
Div₃ = $1.66
Div₄ = $1.85
Div₅ = $2.04
then constant growth rte of 5.3%
equity cost = 7.5%
first we need to determine the stock price in year 5 using the Gordon growth model:
stock price = [dividend x (1+g)] / (Re - g) = ($2.04 x 1.053) / (7.5% - 5.3%) = $97.64
now we can discount all the future cash flows:
stock price = $1.28/1.075 + $1.47/1.075² + $1.66/1.075³ + $1.85/1.075⁴ + $2.04/1.075⁵ + $97.64/1.075⁵ = $1.19 + $1.27 + $1.34 + $1.39 + $1.42 + $68.01 = $74.62
Appropriate channels selected is NOT a reason why a new product might fail.
