Deja Brew Coffee Manufacturing Corporation is expected to pay the following dividends over the next six...

Deja Brew Coffee Manufacturing Corporation is expected to pay the following dividends over the next six years: $5, $13, $18, $11, $21 and $3.45. Afterward, the company pledges to maintain a constant 7 percent growth rate in dividends, forever. If the required return on the stock is 9% percent, what is the share price in year 6, P6? What is the current share price, P0? Show all work and be descriptive please!

Solutions

Expert Solution

Share price in year 6 (P6)

Dividend per share in Year 6 (D6) = $3.45 per share

Dividend Growth Rate after 6^th year (g) = 7.00% per year

Required Rate of Return (Ke) = 9.00%

Therefore, the Share price in year 6 (P6) = D6(1 + g) / (Ke – g)

= $3.45(1 + 0.07) / (0.09 – 0.07)

= $3.6915 / 0.02

= $184.58 per share

The current share price (P0)

As per Dividend Discount Model, the Current Share Price the Present Value of the future dividend payments and the present value the stock price for the year 4

Year	Cash flow ($)	Present Value factor at 9.00%	Present Value of cash flows ($)

1	5.00	0.91743	4.59
2	13.00	0.84168	10.94
3	18.00	0.77218	13.90
4	11.00	0.70843	7.79
5	21.00	0.64993	13.65
6	3.45	0.59627	2.06
6	184.58	0.59627	110.06

TOTAL			162.98

“The current share price (P0) will be $162.98 per share”

NOTE

The Formula for calculating the Present Value Factor is [1/(1 + r)ⁿ], Where “r” is the Discount/Interest Rate and “n” is the number of years.

jeff jeffy answered 7 months ago

Next > < Previous

Related Solutions

Lohn Corporation is expected to pay the following dividends over the next four years: $12, $9,...

Lohn Corporation is expected to pay the following dividends over the next four years: $12, $9, $8, and $3.50. Afterwards, the company pledges to maintain a constant 7 percent growth rate in dividends forever. If the required return on the stock is 14 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price $

Interfinn Corporation is expected to pay the following dividends over the next four years: $10, $7,...

Interfinn Corporation is expected to pay the following dividends over the next four years: $10, $7, $6, and $2.75. Afterwards, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 13 percent, what is the current share price?

Far Side Corporation is expected to pay the following dividends over the next four years: $9,...

Far Side Corporation is expected to pay the following dividends over the next four years: $9, $5, $2, and $1. Afterward, the company pledges to maintain a constant 3 percent growth rate in dividends forever. Required: If the required return on the stock is 10 percent, what is the current share price? (Do not round your intermediate calculations.)

Far Side Corporation is expected to pay the following dividends over the next four years: $14,...

Far Side Corporation is expected to pay the following dividends over the next four years: $14, $11, $8, and $5. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 13 percent, what is the current share price? (Do not round your intermediate calculations.) options: $69.86 $66.37 $67.30 $71.96 $75.23 Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over...

Chamberlain Corporation is expected to pay the following dividends over the next four years: $12.60, $8.60,...

Chamberlain Corporation is expected to pay the following dividends over the next four years: $12.60, $8.60, $7.60, and $3.10. Afterward, the company pledges to maintain a constant 4% growth rate in dividends forever. If the required return on the stock is 12%, what is the current share price? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Current share price $

Chamberlain Corporation is expected to pay the following dividends over the next four years: $13.70, $9.70,...

Chamberlain Corporation is expected to pay the following dividends over the next four years: $13.70, $9.70, $8.70, and $4.20. Afterward, the company pledges to maintain a constant 4% growth rate in dividends forever. If the required return on the stock is 12%, what is the current share price? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Current share price [ ]

1) Far Side Corporation is expected to pay the following dividends over the next four years:...

1) Far Side Corporation is expected to pay the following dividends over the next four years: $14, $10, $8, and $4. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. Required: If the required return on the stock is 12 percent, what is the current share price? 2) Marcel Co. is growing quickly. Dividends are expected to grow at a 25 percent rate for the next 3 years, with the growth rate falling off...

Lohn Corporation is expected to pay the following dividends over the next four years: $7.48, $3.6,...

Lohn Corporation is expected to pay the following dividends over the next four years: $7.48, $3.6, $6.1, and $6.07. Afterward, the company pledges to maintain a constant 4.95 percent growth rate in dividends forever. If the required return on the stock is 7.06 percent, what is the current share price?

Lohn Corporation is expected to pay the following dividends over the next four years: $9, $7,...

Lohn Corporation is expected to pay the following dividends over the next four years: $9, $7, $3, and $1. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 14 percent, what is the current share price?

Lohn Corporation is expected to pay the following dividends over the next four years: $11, $8,...

Lohn Corporation is expected to pay the following dividends over the next four years: $11, $8, $4, and $2. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever . If the required return on the stock is 13 percent, what is the current share price?

Subjects