Question

9. Knightmare, Inc., will pay a dividend of $6.15, $9.05, and $12.25 per share for each of the next three years, respectively. The company will then close its doors. Investors require a return of 11.7 percent on the company's stock. What is the current stock price?

10. Brickhouse is expected to pay a dividend of $2.90 and $2.36 over the next two years, respectively. After that, the company is expected to increase its annual dividend at 3.4 percent. What is the stock price today if the required return is 10.8 percent?

Answer 1

Current stock price=Present value of dividends

1.

=6.15/1.117+9.05/1.117^2+12.25/1.117^3=21.5489802

2.

=2.90/1.108+2.36/1.108^2+2.36/1.108^2*1.034/(10.8%-3.4%)=31.40062445