Fowler, Inc., just paid a dividend of $2.70 per share on its stock. The dividends are...

Fowler, Inc., just paid a dividend of $2.70 per share on its stock. The dividends are expected to grow at a constant rate of 4.5 percent per year, indefinitely. Assume investors require a return of 9 percent on this stock.

a.	What is the current price?
b.	What will the price be in six years and in thirteen years?

Expert Solution

a.Current price=D1/(Required return-Growth rate)

=(2.7*1.045)/(0.09-0.045)

=$62.7

b.P6=Current price*(1+Growth rate)^6

=62.7*(1.045)^6

=$81.65(Approx)

P13=Current price*(1+Growth rate)^13

=62.7*(1.045)^13

=$111.12(Approx)

jeff jeffy answered 2 years ago

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