Question
In: Finance
Assume Highline Company has just paid an annual dividend of $ 1.02 Analysts are predicting an...
Assume Highline Company has just paid an annual dividend of
$ 1.02
Analysts are predicting an
10.9 %
per year growth rate in earnings over the next five years. After?then, Highline's earnings are expected to grow at the current industry average of
5.1 %
per year. If? Highline's equity cost of capital is
8.5 %
per year and its dividend payout ratio remains? constant, for what price does the? dividend-discount model predict Highline stock should? sell?
Solutions
Expert Solution
| Highline stock should? sell at $40.6235 | ||||
| Statemnet showing Current Price | ||||
| Particulars | Time | PVf 8.5% | Amount | PV |
| Cash inflows (Dividend) | 1.00 | 0.9217 | 1.1312 | 1.0426 |
| Cash inflows (Dividend) | 2.00 | 0.8495 | 1.2545 | 1.0656 |
| Cash inflows (Dividend) | 3.00 | 0.7829 | 1.3912 | 1.0892 |
| Cash inflows (Dividend) | 4.00 | 0.7216 | 1.5429 | 1.1133 |
| Cash inflows (Dividend) | 5.00 | 0.6650 | 1.7110 | 1.1379 |
| Cash inflows (Price) | 5.00 | 0.6650 | 52.8910 | 35.1749 |
| Current Price of Stock | 40.6235 | |||
| P5 = D6/ke-g | ||||
| p5 = 1.711*1.051/(8.5% - 5.1%) | ||||
| p5 = 1.7983/(3.4%) | ||||
| P5 = $52.891 | ||||
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