Question

GUESTION i Core 3 the 312,518 d 1.0. Afterwards, the company pledges to mainta percent, what is the current share price?

Answer 1

The current share price is computed by using the below formula:

= Dividend at end of year 1 / ( 1 + required rate of return )¹ + Dividend at end of year 2 / ( 1 + required rate of return )² + Dividend at end of year 3 / ( 1 + required rate of return )³ + Dividend at end of year 4 / ( 1 + required rate of return )⁴ + 1 / ( 1 required rate of return )⁴ [ Dividend at end of year 5 / ( required rate of return - growth rate)]

= $ 5 / 1.14 ¹ + $ 12 / 1.14² + $ 18 / 1.14³ + $ 1.8 / 1.14⁴ + 1 / 1.14⁴ [ ( $ 1.8 x 1.04 ) / ( 0.14 - 0.04 ) ]

= $ 37.92 Approximately

So the correct answer will be option of $ 37.92

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