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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

jeff jeffy answered 2 years ago
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