Question

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.95 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on the stock, what is the current price? What will the price be in three years? In 15 years?

Answer 1

Using excel formula to calculate

	C	D
6	Current Dividend	1.95
7	Dividend Frowth Rate	4%
8	Required Return	10.50%
9
10
11
12
13
14
15			Excel formula
16	Dividend in one year	2.03	D6*(1+D7)
17	Price today	31.20	D16/(D8-D7)
18			Excel formula
19	Dividend in 4 year	2.28	D6*(1+D7)^4
20	Price in 3 years	35.10	D19/(D8-D7)
21			Excel formula
22	Dividend in 16 year	3.65	D6*(1+D7)^16
23	Price in 15 years	56.19	D22/(D8-D7)