The Jackson–Timberlake Wardrobe Co. just paid a dividend of$3.93 per share on its stock. The...

The Jackson–Timberlake Wardrobe Co. just paid a dividend of $3.93 per share on its stock. The dividends are expected to grow at a constant rate of 4.5 percent per year indefinitely. Investors require a return of 8.84 percent on the company's stock.

What will the stock price be in 10 years?

Solutions

Expert Solution

The formula for the Constant dividend growth model is

Stock Price Now= Dividend for next period / (Required rate of Return - Growth Rate)

Dividend for next period = Dividend Now ( 1 + Growth Rate)

= 3.93 (1 + 4.5%)

= 4.10685

Stock Price Now= Dividend for next period / (Required rate of Return - Growth Rate)

= 4.10685 / (8.84% - 4.5%)

= 105.3038

Stock Price after 10 Years = Stock Price Now (1 + Required return)^n

= 105.3038 (1 + 8.84%)^10

= 245.657

So the stock price in 10 years will be $245.657

jeff jeffy answered 2 years ago

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