Question
In: Finance
Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend...
Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3 of $4. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth __________ today.
$85.60
$65.13
$63.80
$67.95
Solutions
Expert Solution
| the stock should be worth $67.95 today | ||||
| Statemnet showing Current Price | ||||
| Particulars | Time | PVf 12% | Amount | PV |
| Cash inflows (Dividend) | 1.00 | 0.8929 | 2.00 | 1.79 |
| Cash inflows (Dividend) | 2.00 | 0.7972 | 3.00 | 2.39 |
| Cash inflows (Dividend) | 3.00 | 0.7118 | 4.00 | 2.85 |
| Cash inflows (Price) | 3.00 | 0.7118 | 85.60 | 60.93 |
| Current Price of Stock | 67.95 | |||
| P3= D4/(ke-g) | ||||
| P3= 4*1.07/(12%-7%) | ||||
| P3= 4.28/(5%) | ||||
| P3 =$85.60 | ||||
jeff jeffy answered 1 year agoRelated Solutions
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