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the answer of $62.17 is coming up wrong. thank you.
Company Z-primes earnings and dividends per share are expected to grow by 4% a year. Its growth will stop after year 4. In y
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Answer #1

EPS1 = $9.00
D1 = $2.00

Growth rate till year 4 is 4% and afterward growth will stop

EPS2 = $9.00 * 1.04 = $9.36
D2 = $2.00 * 1.04 = $2.08

EPS3 = $9.36 * 1.04 = $9.7344
D3 = $2.08 * 1.04 = $2.1632

EPS4 = $9.7344 * 1.04 = $10.12378
D4 = $2.1632 * 1.04 = $2.24973

In year 5 and afterward, the company will pay out all earnings as dividend

D5 and onward = EPS5
D5 and onward = $10.12378

Market Capitalization Rate, k = 12%

P4 = D5 / k
P4 = $10.12378 / 0.12
P4 = $84.36483

P0 = $2.00/1.12 + $2.08/1.12^2 + $2.1632/1.12^3 + $2.24973/1.12^4 + $84.36483/1.12^4
P0 = $60.03

So, Z-prime’s stock price is $60.03

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