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Bayou Okra Farms just paid a dividend of $3.05 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely.


Bayou Okra Farms just paid a dividend of $3.05 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 12 percent for the first three years, return of 10 percent for the next three years, and a return of 8 percent thereafter. What is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, ... 32.16.) 

Current share price = _______ 

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Answer #1

Current Price = [{D0 * (1 + g)} / (1 + r1)] + [{D0 * (1 + g)2} / (1 + r1)2] + [{D0 * (1 + g)3} / (1 + r1)3] + [{D0 * (1 + g)4} / {(1 + r1)3 * (1 + r2)}] + [{D0 * (1 + g)5} / {(1 + r1)3 * (1 + r2)2}] + [{D0 * (1 + g)6} / {(1 + r1)3 * (1 + r2)3}] + [{D0 * (1 + g)7} / {(rC - g) * (1 + r1)3 * (1 + r2)3}]

= [{$3.05 * (1 + 0.05)} / (1 + 0.12)] + [{$3.05 * (1 + 0.05)2} / (1 + 0.12)2] + [{$3.05 * (1 + 0.05)3} / (1 + 0.12)3] + [{$3.05 * (1 + 0.05)4} / {(1 + 0.12)3 * (1 + 0.10)}] + [{$3.05 * (1 + 0.05)5} / {(1 + 0.12)3 * (1 + 0.10)2}] + [{$3.05 * (1 + 0.05)6} / {(1 + 0.12)3 * (1 + 0.10)3}] + [{$3.05 * (1 + 0.05)7} / {(0.08 - 0.05) * (1 + 0.12)3 * (1 + 0.10)3}]

= $2.86 + $2.68 + $2.51 + $2.40 + $2.29 + $2.19 + $76.50 = $91.43

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