Bon Chance, Inc., has an odd dividend policy. The company has just paid a dividend of...
Bon Chance, Inc., has an odd dividend policy. The company has just paid a dividend of $11.00 per share and has announced that it will increase the dividend by $9.00 per share for each of the next four years, and then never pay another dividend.
If you require a return of 16 percent on the company's stock, how much will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current share price $_______
Homework Answers
Computation of Current Share Price
Current Share Price can be calculated by adding the present values of future dividends
Dividend paid currently (D0) = $11. Since Dividend paid is being increased by $9 every year. D1= $20 D2= $29 D3= $38 D4= $47
Current Share Price is $89.10 after rounding off to 2 places.
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