Your company is estimated to make dividends payments of $2.9 next year, $3.5 the year after,...

Your company is estimated to make dividends payments of $2.9 next year, $3.5 the year after, and $4.4 in the year after that. The dividends will then grow at a constant rate of 5% per year. If the discount rate is 9% then what is the current stock price?

Expert Solution

Value after year 3=(D3*Growth rate)/(Discount rate-Growth rate)

=(4.4*1.05)/(0.09-0.05)

=$115.5

Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)

=2.9/1.09+3.5/1.09^2+4.4/1.09^3+115.5/1.09^3

=$98.19(Approx)

jeff jeffy answered 1 year ago

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