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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?

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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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