Lohn Corporation is expected to pay the following dividends over the next four years: $14, $10, $7, and $4. Afterward, the company pledges to maintain a constant 7 percent growth rate in dividends forever. If the required return on the stock is 14 percent, what is the current share price?
Multiple Choice $63.27 $61.40 $68.82 $65.17 $60.11
Value after year 4=(D4*Growth rate)/(Required rate-Growth rate)
=(4*1.07)/(0.14-0.07)
=61.1428571(Approx).
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=14/1.14+10/1.14^2+7/1.14^3+4/1.14^4+61.1428571/1.14^4
=$63.27(Approx).
Lohn Corporation is expected to pay the following dividends over the next four years: $14, $10, $7, and $4. Afterward, t...
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