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In: Finance

You are following Parks’s Perfect Pianos (3P) stock. You’re asked to value the firm’s stock. You’re...

You are following Parks’s Perfect Pianos (3P) stock. You’re asked to value the firm’s stock. You’re told the firm will pay a dividend of $1.80 next quarter. You estimate the firm’s dividends will grow at 5% per quarter for 4 years; then at 3% quarterly for 5 years; then at 1% quarterly thereafter. The discount rate is 11% per year, compounded annually. Find the stock price.

Solutions

Expert Solution

Discount rate per quarter = 11%/4 = 2.75%

Quarter Dividend PVF @ 2.75% PV
1 1.8000 0.97323601 1.7518
2 1.8900 0.947188331 1.7902
3 1.9845 0.921837791 1.8294
4 2.0837 0.897165734 1.8694
5 2.1879 0.873153999 1.9104
6 2.2973 0.849784914 1.9522
7 2.4122 0.827041278 1.9950
8 2.5328 0.804906354 2.0387
9 2.6594 0.783363848 2.0833
10 2.7924 0.762397906 2.1289
11 2.9320 0.741993095 2.1755
12 3.0786 0.722134399 2.2232
13 3.2325 0.702807201 2.2719
14 3.3942 0.683997276 2.3216
15 3.5639 0.66569078 2.3724
16 3.7421 0.647874238 2.4244
17 3.9292 0.630534538 2.4775
18 4.0470 0.613658918 2.4835
19 4.1685 0.597234957 2.4896
20 4.2935 0.581250566 2.4956
21 4.4223 0.565693982 2.5017
22 4.5550 0.550553754 2.5078
23 4.6916 0.535818738 2.5139
24 4.8324 0.521478091 2.5200
25 4.9774 0.507521256 2.5261
26 5.1267 0.493937962 2.5323
27 5.2805 0.480718211 2.5384
28 5.4389 0.467852274 2.5446
29 5.6021 0.45533068 2.5508
30 5.7701 0.443144214 2.5570
31 5.9432 0.431283907 2.5632
32 6.1215 0.419741029 2.5695
33 6.3052 0.408507084 2.5757
34 6.4943 0.397573804 2.5820
35 6.6892 0.386933143 2.5883
36 6.8898 0.376577268 2.5946
37 7.0965 0.366498558 2.6009
86.4509

From quarter 38th , dividend will grow @ 1% quarterly

PV at 37th quarter = D37(1+g) / Ke - g = 7.0965 (1+0.01) / 0.0275 - 0.01 = 409.5694

PV or stock price today = (409.5694 * PVF(2.75%,37 periods) + 86.4509 = (409.5694 *0.366498558) + 86.4509 = $236.56

jeff jeffy answered 1 year ago
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