Lora Corp. anticipates a non-constant growth pattern for dividends. Dividends are expected to be $1.30 next...

Lora Corp. anticipates a non-constant growth pattern for dividends. Dividends are expected to be $1.30 next year followed by a 15% growth rate until the end of year five. At this time dividends will grow at a 5% rate for the foreseeable future. Use a discount rate of 12% (Ke) throughout your analysis. Round all values that you compute to two places to the right of the decimal point. Calculate P_o

Show the table to calculate for PV (dividend from year 1 to year 5) (with 3 columns) (0.6 point)
Show PV (dividend for year 1 to year 5) (0.1 point)
Show formula to find the price at year 5 (0.1 point)
Show work to find the price at year 5 (0.2 point)
Present price for year 5 (0.1 point)
Show formula to find the PV (price for year 5) (0.2 point)
Show work to find the price at year 5 (0.1 point)
Present PV (price for year 5) (0.1 point)
Show work to the price of this stock (0.2 point)
Present price of this stock (0.1 point)

Solutions

Expert Solution

Based on the given data, pls find below workings, steps and answers highlighted in yellow:

Discounted Dividends = Dividends * Discounting Factor; The Discounting factor is computed based on the formula: For year 0, the discounting factor is 1; For Year 1, it is computed as = Year 0 factor /(1+discounting factor%) ; Year 2 = Year 1 factor/(1+discounting factor %) and so on;

- PV at Year 5 is computed as Total of all the Present values of dividends from Year 1 to Year 5;

- Terminal Dividend is calculated at 5% growth over the Year 5 dividend value; The Terminal value of stock is computed with the given formula: Terminal dividend / (Cost of Capital - Perpetual Growth)

- Present Value of the Terminal value of Stock is calculated by discounting the terminal value with the discount factor of Year 5;

- Total Share value = PV of the dividend flows till Year 5 and the PV of the Terminal Value of the Stock;

jeff jeffy answered 1 year ago

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