Bayou Okra Farms just paid a dividend of $3.95 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 14 percent for the first three years, a return of 12 percent for the next three years, and a return of 10 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.)
Dividends are
Year |
Dividend |
1 |
4.1475 |
2 |
4.3549 |
3 |
4.5726 |
4 |
4.8012 |
5 |
5.0413 |
6 |
5.2934 |
Horizon value = P6=D7/(k-g) = 5.2934*105%/(10%-5%)=111.16
Current price = D1/(1+k)+ D2/(1+k)^2 +............. (Dn+Pn) /(1+k)^n
=4.1475/1.14^1+4.3549/1.14^2+4.5726/1.14^3+4.8012/1.12^4+5.0413/1.12^5+(5.2934+111.16)/1.12^6
=$74.99
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