Upton Corporation is expected to pay the following dividends over the next four years: $16, $12,...

Upton Corporation is expected to pay the following dividends over the next four years: $16, $12, $11, and $7.50. Afterwards, the company pledges to maintain a constant 6 percent growth rate in dividends forever. If the required return on the stock is 16 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Please provide as many details as possible on formulas and calculations (Excel preferred). Thank you.

Expert Solution

1) Calculation of stock's current price:
Year	Amount	PVF @16%	Present value
1	16.00	0.862	13.79
2	12.00	0.743	8.92
3	11.00	0.641	7.05
4	7.50	0.552	4.14
4	79.50	0.552	43.88
Total			77.78

Current price is $77.78

Working:
Calculation of dividend:
Terminal value= Dividend(1+growth)/(return-growth)
=7.50*(1+0.06)/(0.16-0.06)
= 7.95/0.10=79.50

jeff jeffy answered 2 months ago

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