Answer:
$67.95
Explanation:
Dividends per year;
D1 =$2
D2 = $3
D3 = $4
D4 = D3(1+g)
g= growth rate = 7% or 0.07 as a decimal
D4 = 4*(1.07) = $4.28
Next, find PV of each dividend at 12% rate of return and sum them up;
Price= 2/ (1.12) + 3/(1.12^2) +4/ (1.12^3) +
=1.7857 + 2.3916 + 2.8471 + 60.9284
= 67.9528
Therefore, the stock should be worth $67.95 today
Answer:
Value of stock today = $37.3738
Explanation:
Provided details we have,
Dividend just given = $2.10
Dividend at end of Year 1 = $2.10 + 11% = $2.331
Dividend at end of Year 2 = $2.331 + 11% = $2.5874
Dividend at end of Year 3 = $2.5874 + 11% = $2.872
Dividend at end of Year 4 = $2.872 + 11% = $3.188
Dividend in 5th year = $3.188 + 3.5% = $3.299
Value of share at end of 4th year =
= = $43.987
Therefore value of share today shall be:
Year Present Value factor @11% Return Present Value
1 0.9009 $2.331 $2.099998
2 0.8116 $2.5874 $2.099934
3 0.7311 $2.872 $2.0997192
4 0.6587 $3.188 $2.0999356
4 0.6587 $43.987 $28.9742
Net Present Value i.e. Value of stock today = $37.3738