Question
In: Finance
University Dry Cleaners has been growing at a rate of 19% per year in recent years....
University Dry Cleaners has been growing at a rate of 19% per
year in recent years. This same growth rate is expected to last for
another 3 years,then decline to g(n)=7%
a. If Do=$180 and r(s)=10%,what is Calle Ochoa stock worth
today?
Terminal value-?
Value of stock today-?
Solutions
Expert Solution
| Calculation of stock's current price: | ||||
| Year | Particulars | Amount | PVF @10% | Present value |
| 1 | Dividend | 214.20 | 0.909 | 194.73 |
| 2 | Dividend | 254.90 | 0.826 | 210.66 |
| 3 | Dividend | 303.33 | 0.751 | 227.90 |
| 3 | Terminal value | 10,818.77 | 0.751 | 8,124.90 |
| Total | 8,758.18 | |||
| So terminal value is $10818.77 | ||||
| So value of stock is $8758.18 | ||||
| Working: | ||||
| Calculation of dividend: | ||||
| Year 1= Dividend= 180(1+0.19)=$214.20 | ||||
| Year 2= Dividend= 214.20(1+0.19)=$254.90 | ||||
| Year 3= Dividend= 254.90(1+0.19)=$303.33 | ||||
| Terminal value= Dividend(1+growth)/(return-growth) | ||||
| =303.33(1+0.07)/(0.010-0.07) | ||||
| =10818.77 | ||||
jeff jeffy answered 2 years agoRelated Solutions
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