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

jeff jeffy answered 1 month ago

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