Question

Miles Hardware has an annual cash dividend policy that raises the dividend each year by 12​%. Last​ year's dividend, Div0​, was $1.70 per share. Investors want a return of 16​% on this stock. What is the​ stock's price if

a.the company will be in business for 10 years and not have a liquidating​ dividend?

b.the company will be in business for 20 years and not have a liquidating​ dividend?

c.the company will be in business for 25 years and not have a liquidating​ dividend?

d. the company will be in business for 40 years and not have a liquidating​ dividend?

e.the company will be in business for 90 years and not have a liquidating​ dividend?

f.the company will be in business​ forever?

Answer 1

a.the company will be in business for 10 years and not have a liquidating​ dividend?
=1.70*(1+12%)/(1+16%)*(1-((1+12%)/(1+16%))^10)/(1-((1+12%)/(1+16%)))=14.08746449

b.the company will be in business for 20 years and not have a liquidating​ dividend?
=1.70*(1+12%)/(1+16%)*(1-((1+12%)/(1+16%))^20)/(1-((1+12%)/(1+16%)))=24.00567151

c.the company will be in business for 25 years and not have a liquidating​ dividend?
=1.70*(1+12%)/(1+16%)*(1-((1+12%)/(1+16%))^25)/(1-((1+12%)/(1+16%)))=27.80261683

d. the company will be in business for 40 years and not have a liquidating​ dividend?
=1.70*(1+12%)/(1+16%)*(1-((1+12%)/(1+16%))^40)/(1-((1+12%)/(1+16%)))=35.90478284

e.the company will be in business for 90 years and not have a liquidating​ dividend?
=1.70*(1+12%)/(1+16%)*(1-((1+12%)/(1+16%))^90)/(1-((1+12%)/(1+16%)))=45.57693441

f.the company will be in business​ forever?
=1.70*(1+12%)/(16%-12%)=47.6