Far Side Corporation is expected to pay the following dividends over the next four years: $16, $12, $7, and $4. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. Required: If the required return on the stock is 10 percent, what is the current share price? (Do not round your intermediate calculations.) $87.60 $94.61 $85.34 $92.52 $89.83
Value after year 4=(D4*Growth rate)/(Required rate-Growth rate)
=(4*1.05)/(0.1-0.05)
=$84
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=16/1.1+12/1.1^2+7/1.1^3+4/1.1^4+84/1.1^4
=$89.83(Approx).
Far Side Corporation is expected to pay the following dividends over the next four years: $16,...
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