You anticipate that XSensors Co. will pay a constant dividend of $2.3 each year for the...

You anticipate that XSensors Co. will pay a constant dividend of $2.3 each year for the next 10 years. After that, the dividend will increase to $4.65 and hold steady for another 10 years. After that, you expect the dividend will start increasing every year at a constant rate of 2 percent per year, forever. Your discount rate for this stock is 12.2 percent. How much are you willing to pay for this stock today?

Expert Solution

																				12.20%	2%
	Year1	Year2	Year3	Year4	Year5	Year6	Year7	Year8	Year9	Year10	Year11	Year12	Year13	Year14	Year15	Year16	Year17	Year18	Year19	Year20	Year21	Year26
	2.3	2.3	2.3	2.3	2.3	2.3	2.3	2.3	2.3	2.3	4.65	4.65	4.65	4.65	4.65	4.65	4.65	4.65	4.65	4.65	4.74
																				46.5	TV at Year 20
Dividend with TV	2.3	2.3	2.3	2.3	2.3	2.3	2.3	2.3	2.3	2.3	4.65	4.65	4.65	4.65	4.65	4.65	4.65	4.65	4.65	51.15
npv	$25.78

TV= Terminal value which is calculated at year 20 because after this year, growth rate is constant forever. Discount rate is 12.2%

NPV is calculated by excel formula =

=NPV(rate, Value1, value2, value3,....value20)

jeff jeffy answered 2 years ago

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