Question

Lawrence Industries' most recent annual dividend was $1.14 per share (D0=1.14) and the firms required return is 12%. Find the market value of Lawrence shares when dividends are expected to grow at 10% annually for 3 years followed by a 7% constant annual growth rate in years 4 to infinity.

The market value of Lawrence share is ____ ?( Round to nearest cent.)

Answer 1

	E	F	G	H
5	Year	Dividend=D0(1+g)^n	Discount factor = 1/(1+r)^n	Present value
6	1	1.2540	0.892857	1.11964
7	2	1.3794	0.797194	1.09965
8	3	1.5173	0.711780	1.08001
9
			Present value = 3.30(rounded)	3.29930
		Present value of dividend 3 years onwards
		=(D3*(1+g)/(ke-g))*(1+ke)^-3
		= (1.5173*(1+.07)/(.12-.07))*(1.11)^-3
		=(1.623511/(.050*)).731191
		=32.47022*.731191
		=23.74195
		Market value = Present value + Present value od dividend 3 years onwards
		= 3.29930+23.74195 = 27.04

formula:

	E	F	G	H
5	Year	Dividend=D0(1+g)^n	Discount factor = 1/(1+r)^n	Present value
6	1	=(1.14)*(1+0.1)^E6	=1/(1+0.12)^E6	=F6*G6
7	2	=(1.14)*(1+0.1)^E7	=1/(1+0.12)^E7	=F7*G7
8	3	=(1.14)*(1+0.1)^E8	=1/(1+0.12)^E8	=F8*G8
9
			Present value = 3.30(rounded)	=SUM(H6:H9)