Question

8.2 = $39.67 Notice that both approaches yield the same price in five years. In this scenario, we have supernormal growth for the next three years. We'll need to calculate the dividends during the rapid growth period and the stock price in three years. The dividends are: D = $2.00 x 1.20 = $2.400 D = $2.40 x 1.20 = $2.880 D = $2.88 X 1.20 = $3.456 After three years, the growth rate falls to 8 percent indefinitely. The price at that time. P, is thus: P, = DX(1 + g)/(R-8) = $3.456 X 1.08/(.16 - .08) = $3.7325/.08 = $46.656 To complete the calculation of the stock's present value, we have to determine the present value of the three dividends and the future price: D D₂ D₂ P₂ (1 + R)! *(1 + R)? '(1 + R) (1 + R) $2.40 2.88 + 3.456 _ 46.656 | 1.16 * 1.162 1.16 1.16 = $2.07 + 2.14 + 2.21 + 29.89 = $36.31

Hi,
Could you show me how to solve for NPV using only financial calculator please?

Thank you very much in advance!

Answer 1

NPV using the financial calculator.

Press the CF button.
After that press 2nd+ CE|C

Now Enter the data as follows:
CF0 = 0 and press Enter
C01 = 2.40 and press Enter
F01 = 1 and press Enter
C02 = 2.880 and press Enter.
F02 = 1 and press Enter
C03 = 3.456+46.656 press = and press Enter.

Now press CPT+ NPV

and I = 16 and press Enter
Down arrow + CPT

NPV = $36.3139 1201

So you get your required NPV using a financial calculator.  

Note:

C01, C02,C03 are cash flows at year 1,2,3. They are the dividend received at those respective years.