Kafue Fisheries paid a dividend of K0.58 per share this year. Dividends at the end of...

Kafue Fisheries paid a dividend of K0.58 per share this year. Dividends at the end of each of the next five years are expected to be as follows:

Year 1 K0.70

Year 2 K0.83

Year 3 K0.96

Year 4 K1.09

Year 5 K1.22

After year 5, dividends are expected to grow indefinitely at 10 percent a year. If your required rate of return for Kafue Fisheries’ common stock is 12 percent, what is the most that you would pay per share for Kafue Fisheries today?

Expert Solution

Year	Dividends	Discount factor @12%	Present value
1	0.70	0.89286	0.63
2	0.83	0.79719	0.66
3	0.09	0.71178	0.06
4	1.09	0.63552	0.69
5	1.22	0.56743	0.69
5	67.10	0.56743	38.07
Share price			40.81

Discount factor= 1/(1+required rate of return)^year

Share price at the end of 5th year= 5th year dividend*(1+growth rate)/ (required rate-growth rate)

=1.22*1.1/(0.12-0.1)=67.10

jeff jeffy answered 3 years ago

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