Question

In: Finance

Fowler, Inc., just paid a dividend of $3.10 per share on its stock. The dividends are...

Fowler, Inc., just paid a dividend of $3.10 per share on its stock. The dividends are expected to grow at a constant rate of 4.25 percent per year, indefinitely. Assume investors require a return of 9 percent on this stock


a: What is the current price?



b: Price in six years years


c:Price in thirteen years

Solutions

Expert Solution

1) Calculation of price per share:
D0= $3.10
D1= D0*(1+groth)= 3.10*(1+0.0425)=3.23175
Growth= 4.25%
Required return= 9%
Price= D1/(required return-growth)
          = 3.23175/(0.09-0.0425)= 3.23175/0.0475= $68.04
Pric per share is $68.04
2)Calculation of price in six years:
Price in six years= current price*(1+growth)^6
                                       =68.04*(1+0.0425)^6
                                       = 68.04*1.283678= 87.34
Price in six years= $87.34
3)Calculation of price in 13 years:
Price in 13 years= current price*(1+growth)^13
                                       =68.04*(1+0.0425)^13
                                       = 68.04*1.71786=116.88
Price in 13 years= $116.88

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