Question

Suppose that Kiara Corp’s just paid pays a dividend of $3, for which rs = 12% and g = 40% for 4 years before achieving long-run growth of 6%. What is the price of the stock today?

$139.11

$129.39

None of these

$125.24

$142.11

Answer 1

Price of STock = PV of CFs from It.

Div Calculation:

Year	CF	Formula	Calculation
1	$      4.20	D0(1+g)	3*1.4
2	$      5.88	D1(1+g)	4.2*1.4
3	$      8.23	D2(1+g)	5.88*1.4
4	$   11.52	D3(1+g)	8.23*1.40
5	$   12.22	D4(1+g)	11.52*1.06

P4 = D5 / [ Ke - g ]  

= 12.22 / [ 12% - 6% ]

= 12.22 / 6%

= 203.67

P0 ( Price Today):

Year	CF	PVF @12%	Disc CF
1	$      4.20	0.8929	$      3.75
2	$      5.88	0.7972	$      4.69
3	$      8.23	0.7118	$      5.86
4	$   11.52	0.6355	$      7.32
4	$ 203.67	0.6355	$ 129.44
Price of Stock today			$ 151.06