Constant Growth Stock Valuation
You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend of $1.25 yesterday. You expect the dividend to grow at the rate of 7% per year for the next 3 years, if you buy the stock; you plan to hold it for 3 years and then sell it.
a.Expected Dividend
D1 = 1.25(1.07) = $1.3375
D2 = 1.25(1.07)2 = $1.43
D3 = 1.25(1.07)3 = $1.53
b.Present value = 1.34/1.10 + 1.43/(1.10)2 + 1.53/(1.1)3
= $3.55
c.Present value = 54.62/(1.10)3
= $41.04
d.Most to be paid = 3.55+41.04
= $44.59
e.Stock Price = 1.3375/(10%-7%)
= $44.58
f.III No, does not depend
Constant Growth Stock Valuation You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ...
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