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Problem 8-14 Stock Valuation [LO1] Bayou Okra Farms just paid a dividend of $3.90 on its...

Problem 8-14 Stock Valuation [LO1]

Bayou Okra Farms just paid a dividend of $3.90 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for the next three years, and a return of 9 percent thereafter. 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 $   
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Answer #1
Current share price is $88.05
Statemnet showing Current Price
Particulars Time PVf 13%,11%,9% Amount PV
Cash inflows (Dividend)                           1.00                         0.8850                       4.0950                         3.62
Cash inflows (Dividend)                           2.00                         0.7831                       4.2998                         3.37
Cash inflows (Dividend)                           3.00                         0.6931                       4.5147                         3.13
Cash inflows (Dividend)                           4.00                         0.6244                       4.7405                         2.96
Cash inflows (Dividend)                           5.00                         0.5625                       4.9775                         2.80
Cash inflows (Dividend)                           6.00                         0.5068                       5.2264                         2.65
Cash inflows (Dividend)                           7.00                         0.4649                       5.4877                         2.55
Cash inflows (Price)                         7.00                         0.4649                   144.0521                      66.97
Current Price of Stock                      88.05
P7 = D8/(ke-g)
P7 = 5.4877*1.05/(9%-5%)
P7 = 5.7621/(4%)
P7 = $144.0521
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