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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 ago
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