Question
In: Finance
CX Enterprises has the following expected dividends: $ 1.13 in one year, $ 1.24 in two...
CX Enterprises has the following expected dividends: $ 1.13 in one year, $ 1.24 in two years, and $ 1.32 in three years. After that, its dividends are expected to grow at 4.5 % per year forever (so that year 4's dividend will be 4.5 % more than $ 1.32 and so on). If CX's equity cost of capital is 12.1 %, what is the current price of its stock?
Solutions
Expert Solution
| current price of its stock is $15.82 | ||||
| Statement showing Current Price | ||||
| Particulars | Time | PVf12.1% | Amount | PV |
| Cash inflows (Dividend) | 1.00 | 0.8921 | 1.1300 | 1.01 |
| Cash inflows (Dividend) | 2.00 | 0.7958 | 1.2400 | 0.99 |
| Cash inflows (Dividend) | 3.00 | 0.7099 | 1.3200 | 0.94 |
| Cash inflows (Price) | 3.00 | 0.7099 | 18.1500 | 12.88 |
| Current Price of Stock | 15.82 | |||
| P3= D4/ke-g | ||||
| P3 = 1.32*1.045/(12.1%-4.5%) | ||||
| P3 = 1.3794/(7.6%) | ||||
| P3 = 18.15 |
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