If Masterston, Inc. just paid $2.55 to its shareholders as the annual dividend. Simultaneously, the company...
If Masterston, Inc. just paid $2.55 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.5 percent per year, indefinitely and investors require a rate of return of 11 percent on this stock. What is the current price? What is the price in three years? What is the price in fifteen years?
Homework Answers
Current price=D1/(Required return-Growth rate)
=(2.55*1.055)/(0.11-0.055)
=$48.91(Approx).
P3=Current price*(1+Growth Rate)^3
=48.91*(1.055)^3
=$57.44(Approx).
P15=Current price*(1+Growth Rate)^15
=48.91*(1.055)^15
=$109.20(Approx).
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