Question

In: Finance

The Copperfield Auction House is growing quickly. Dividends are expected to grow at 21.04% for the...

The Copperfield Auction House is growing quickly. Dividends are expected to grow at 21.04% for the next three years, after which growth is expected to be a constant 2.93%. The required return is 15.52% and the company just paid a $1.77 annual dividend. What is the current share price? (Round all intermediate steps to 4 digits) (Round Answer to nearest penny)

Select one:

a. $ 22.48

b. $ 25.72

c. $ 27.78

d. $ 19.98

e. $ 20.17

Solutions

Expert Solution

Current Share price= a $22.48
Statemnet showing Current Price
Particulars Time PVf 15.52% Amount PV
Cash inflows (Dividend)                            1.00                   0.8657       2.1424                   1.85
Cash inflows (Dividend)                            2.00                   0.7494       2.5932                   1.94
Cash inflows (Dividend)                            3.00                   0.6487       3.1388                   2.04
Cash inflows (Price)                          3.00                   0.6487     25.6612                 16.65
Current Price of Stock                 22.48
P3= D4/ke-g
P3 = 3.1388*1.093/(15.52% - 2.93%)
P3 = 3.2307*1.093/(12.59%)
P3 = $25.6612

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