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NEED ANSWER ASAP / ANSWER NEVER USED BEFORE
a.)
$46.50 per share is the current price for Foster Farms' stock. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today?
Select the correct answer.
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a.P3=Current price*(1+Growth rate)^3
=46.5*(1.055)^3
=$54.60(Approx)..
b.D1=(1.75*1.32)=2.31
D2=(2.31*1.32)=3.0492
Value after year 2=(D2*Growth rate)/(Required return-Growth rate)
=(3.0492*1.06)/(0.12-0.06)
=53.8692
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=2.31/1.12+3.0492/1.12^2+53.8692/1.12^2
=$47.43(Approx)
c.Current value=Annual dividend/required return
=(3.8/0.065)
=$58.46(Approx).
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