Igloo Industries just paid a dividend of $1.20 per share. The dividends are expected to grow at a constant rate of 5% indefinitely. If investors require a return of 13% on Indigo shares, what is the current price? What should the price be in 4 years time? Plz, list the formula
Calculation of current price:
D0= 1.20
D1= D0*(1+growth)= 1.20*(1+0.05)= 1.26
Growth= 5%
Current price= D1/(return-growth)
Current price= 1.26/(0.13-0.05)= 1.26/0.08= $15.75
Current price is $15.75
Price in 4 years= current price*(1+growth)^4
Price in 4 years= 15.75*(1+0.05)^4= 19.14
Price in 4 years is $19.14
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