Question

In: Finance

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

  1. 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?

Solutions

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)


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