Question

Maloney, Inc., has an odd dividend policy. The company has just paid a dividend of $5 per share and has announced that it will increase the dividend by $6 per share for each of the next five years, and then never pay another dividend. If you require a return of 12 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

$

Answer 1

Year	Dividend
1	(5+6)=11
2	(11+6)=17
3	(17+6)=23
4	(23+6)=29
5	(29+6)=35

Hence current price=Future dividends*Present value of discounting factor(rate%,time period)

=11/1.12+17/1.12^2+23/1.12^3+29/1.12^4+35/1.12^5

=$78.03(Approx)