please show steps and provide explanation. thanks!
Homework Answers
| Year | Dividend | present value factor @ 5% | Dividend*present value factor |
| 1 | 1.20 (1-.02)= 1.176 | .95238 | 1.12 |
| 2 | 1.176(1-.02)= 1.15248 | .90703 | 1.0453 |
| 3 | 1.15248(1-.02)= 1.1294304 | .86384 | .9756 |
| Terminal value at year 3 | 20 | .86384 | 17.2768 |
| Current stock price | 20.42 | ||
Working :
Terminal value at year 3 : Dividend /rs
= 1/.05
= 20
Find present value factor using the formula 1/(1+i)^n where i= 5% and n= 1,2,3, or from present value table at 5%
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