In: Finance
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
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 |