Homework Answers
| Value | PV | |
| D1 | $ 6.42 | $ 5.35 |
| D2 | $ 6.87 | $ 4.77 |
| D3 | $ 7.35 | $ 4.25 |
| D4 | $ 7.86 | $ 3.79 |
a) D1 = D0 x (1 + g) = 6 x (1 + 7%) = $6.42 and so on...
b) PV of D1 = D1 / (1 + r)^n = 6.42 / (1 + 20%)^1 = $5.35 and so on...
Total of PV of dividends = $18.17
c) Price in year 4 = D4 x (1 + g) / (r - g) = 7.86 x (1 + 7%) / (20% - 7%) = $60.50
d) PV of P4 = $60.50 / (1 + 20%)^4 = $29.18
e) Current Value = $18.17 + $29.18 = $47.34
f) Current Value = D1 / (r - g) = 6.42 / (20% - 7%) = $49.38
g) Stock Price = EPS x P/E = 7.15 x 1.17 x 6 = $50.19
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