Question

Yang Co. is expected to pay a $21.00 dividend next year. The dividend will decline by 10 percent
annually for the following three years. In year 5, Yang will sell off assets worth $100 per share. The
year 5 dividend, which includes a distribution of some of the proceeds of the asset sale, is expected to
be $60. In year 6, the dividend is expected to decrease to $40 and will be maintained at $40 for one
additional year. The dividend is then expected to grow by 5 percent annually thereafter. If the required
rate of return is 12 percent, what is the value of one share of Yang?

Answer 1

Share price

$399.47

Horizon value= P7=D8/(k-g)

Workings

Year	Dividend	Horizon value
1	21
2	18.9
3	17.01
4	15.309
5	60
6	40
7	40	600
Present value of dividend	$128.06
PV of horizon value	271.41
Share price	$399.47

AutoSave © of HO- Book2 - Excel Sign in - o File Home Insert Draw Page Layout Formulas Data Review View Help O Tell me what you want to do Share Comments = = n - A À - A - E ab - General $ - % 9 Insert Delete - Format - A T ZY U Sort & Find & Filter - Select Paste Calibri 11 B I U - - Font - X S Conditional Format as Formatting Table Cell Styles Clipboard Alignment Number Styles Cells Editing C43 fx Year Year Horizon value Dividend 21 =D44*90% =D45*90% =D46*90% 60 40 40 =D50*105%/(12%-5%) Present value of dividend ENPV(12%,D44:050 PV of horizon value =600/1.12^7 Share price =D53+052