Homework Answers
The correct answer is $ 56.47
Note:
Value = Present Value of Dividends + Present Value of Price at Year 3
= 8.37+ $ 48.1037716836730
= 56.47
Present Value of Dividends:
| Year | Dividend | Discounting Factor(12%) | Present Value |
| 0 | 2.75 | ||
| 1 | 3.16 | 0.8928571428571430 | 2.823660714285710 |
| 2 | 3.54 | 0.7971938775510200 | 2.823660714285710 |
| 3 | 3.83 | 0.7117802478134110 | 2.722815688775510 |
| Present Value of Dividends | 8.37 |
Price at Year 3 = Expected Dividend in Year 4/ ( Required return - growth rate)
= 4.0548816/(12%-6%)
= 67.58136
Present Value of Price at Year 3 =Price at Year 3 * Discounting Factor(12%,3)
= 67.58136 *0.7117802478134110
= $ 48.1037716836730
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