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QUESTION 1 A company just paid a dividend of $1.40 per share. The consensus forecast of...

QUESTION 1

A company just paid a dividend of $1.40 per share. The consensus forecast of financial analysts is a dividend of $1.60 per share next year, $2.30 per share two years from now, and $2.60 per share in three years. You expect the price of the stock to be $25 in two years. If the required rate of return is 9% per year, what would be a fair price for this stock today? (Answer to the nearest penny.)

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Expert Solution

Discount rate 9.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
                             -   0                                            -                                           -  
                      1.600 1                                        1.47                                    1.47
                      2.300 2                                        1.94                                    3.40
                    25.000 2                                     21.04                                  24.45

Fair price of the stock = 24.45

jeff jeffy answered 1 year ago
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