Question

Incorrect Incorrect Question 4 0/5 pts 0/ Shell is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next 2 years, at 13% the following year, and at a constant rate of 6% during Year 4 and thereafter. Its last dividend was $1.15, and its required rate of return is 12%. b) Find the PV of the firm's stock price at the end of Year 3. 30.36

Answer 1

	Required rate=	12.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value
1	1.15	15.00%	1.3225
2	1.3225	15.00%	1.520875
3	1.520875	13.00%	1.71858875	30.362
	Long term growth rate (given)=	6.00%

Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Horizon value = Dividend Current year 3 *(1+long term growth rate)/( Required rate-long term growth rate)

Future value = present value*(1+ rate)^time

30.362 = Present value*(1+0.12)^3

Present value = 21.61

Using Calculator: press buttons "2ND"+"FV" then assign

FV =-30.362

I/Y =12

N =3

PMT = 0

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(0.12,3,,30.362,)