In: Finance
Lohn Corporation is expected to pay the following dividends over the next four years: $7.48, $3.6, $6.1, and $6.07. Afterward, the company pledges to maintain a constant 4.95 percent growth rate in dividends forever. If the required return on the stock is 7.06 percent, what is the current share price?
rate | 7.0600% | |
Cash flows | Year | Discounted CF= cash flows/(1+rate)^year |
- | 0 | - |
7.48 | 1 | 6.99 |
3.60 | 2 | 3.14 |
6.10 | 3 | 4.97 |
6.07 | 4 | 4.62 |
301.92 | 4 | 229.82 |
terminal value = 6.07*1.0495/(0.0706-0.0495) = 301.92
price of the share price = 249.53