Question

A firm recently paid a $0.30 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $14.

If the required return for this stock is 13.5 percent, what is its current value? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

X Fax amount dividend at the end of year 1 (D1) = dividend at the end of year 2 (D2) = dividend at the end of year 3 (D3) = dividend at the end of year 4 (D3) = value of stock at the end of year 4 (P4) = current value of stock (PO) = amount present value $ 0.33 $ 0.29 $ 0.36 $ 0.28 $ 0.40 $ 0.27 $ 0.44 $ 0.26 $ 14.00 $ 8.44 $ 9.55

for formulas and calculations, refer to the image below -

1 x fc amount A с amount present value dividend at the end of year 1 (D1) = =0.3*1.1 =C3/1.135 dividend at the end of year 2 (D2) = =C3*1.1 =C4/1.135/1.135 dividend at the end of year 3 (D3) = =C4*1.1 =C5/1.135/1.135/1.135 dividend at the end of year 4 (D3) = =C5*1.1 =C6/1.135/1.135/1.135/1.135 value of stock at the end of year 4 (P4) = 14 =C7/1.135/1.135/1.135/1.135 current value of stock (PO) = =ROUND(SUM(D3:07),2)

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