Question

Sia Dance Studios has an annual cash dividend policy that raises the dividend each year by 3​%. Last​ year's dividend, Div0​, was $7

per share. The company will be in business for 50 years with no liquidating dividend.

a. What is the price of this stock if an investor wants a return of 8​%?

b.  an investor wants a return of 11​%?

c.  an investor wants a return of 13​%?

d.  an investor wants a return of 14​%?

e.  an investor wants a return of 18​%?

Answer 1

Solution: Dividend in Year 1=7*1.03 X PVGA(11%,10)** Price 7.21 18.13059 130.72 Factor working PVGA(R%,n) (1-(((1+g)/(1+r)^n)/(r-g) | a |PVGA(8%,50) |(1-((1+0.03)/(1+0.08))^50)/(0.08-0.03) 18.13059 bPVGA(11%,50) (1-((1+0.03)/(1+0.11))^50)/(0.11-0.03) 12.20309 CPVGA(13%,50) (1-((1+0.03)/(1+0.13))^50)/(0.13-0.03) | 9.90274| |d|PVGA(14%,50) (1-((1+0.03)/(1+0.14))^50)/(0.14-0.03) | 9.03399 PVGA(18%,50) (1-((1+0.03)/(1+0.18))^50)/(0.18-0.03) 6.65923 b) 7.21 Dividend in Year 1=7*1.03 x PVGA(11%,10)** Price 12.20309 87.98 PVGA Present value of growing annuity required return number of years growth rate Dividend in Year 1=7*1.03 X PVGA(13%,50)** Price 7.21 9.90274 71.40 d) Dividend in Year 1=7*1.03 X PVGA(14%,50)** Price 7.21 9.03399 65.14 e) Dividend in Year 1=7*1.03 X PVGA(18%,50)** Price 7.21 6.65923 48.01