Question

no vucnil Share thereafter. If the required return on this SIUCK IS T... price? 16. Nonconstant Dividends [LO1] Maloney, Inc., has an odd dividend policy to company has just paid a dividend of $3.50 per share and has announced that it increase the dividend by $4.50 per share for each of the next five years, and then never pay another dividend. If you require a return of 11 percent on the company's stock, how much will you pay for a share today? 17. Nonconstant Dividends [LO1] Lohn Corporation is expected to pay the following dividends over the next four years. $13 $0 $6 and 76

Hi,
Would you show me how to solve #16 problem ONLY using a financial calculator?

Thank you very much in advance!

Answer 1

The value that we will pay for a share today is computed as follows:

Dividend at end of year 1 will be as follows:

= $ 3.50 + $ 4.50

= $ 8

Dividend at end of year 2 will be as follows:

= $ 8 + $ 4.50

= $ 12.50

Dividend at end of year 3 will be as follows:

= $ 12.50 + $ 4.50

= $ 17

Dividend at end of year 4 will be as follows:

= $ 17 + $ 4.50

= $ 21.50

Dividend at end of year 5 will be as follows:

= $ 21.50 + $ 4.50

= $ 26

Now we shall plug in the values computed above in the financial calculator as shown below:

In CF0 enter 0

In CF1 enter 8

In F01 enter 1

In CF2 enter 12.50

In F02 enter 1

In CF3 enter 17

In F03 enter 1

In CF4 enter 21.50

In F04 enter 1

In CF5 enter 26

In F05 enter 1

now press NPV key, it will ask for I

In that enter 11 and then press enter and then press down arrow key and finally press CPT,

It will give NPV equal to 59.38 Approximately

Feel free to ask in case of any query relating to this question