Question

Document1 - Word Ibekove, Kem - o AutoSave on File Home g xan Insert Search Com . Design Layout References Mailings Calibri (Body) A A Aa A BIVX, * AD.A. E. Font Review View . .. EE Help 21 Share Find Replace Paste Copy AaBbced AaBbcod AaBb C AaBbcc AaB Aalbce Abc About 1 Normal 1 No Spac. Heading 1 Heading 2 Title Subtitle Subtle Em Emphasisw a Dictate Format Painter Clipboard Paragraph Styles Editing Voice (a) Madison River Fishing, Inc. (MRFI) stock has the following forecasted dividend- per share stream: $1.34 at the end of each of years 1 through 10 and $1.80 at the end of year 11, after which dividends are expected to grow by 2% per year, forever. Using a required return of 14%, calculate a fair price for MRFI's stock today. (3 pts.) (b) Based on the forecasted dividend stream, calculate what MRFI's stock price should be 13 years from now, instantaneously after Div13 is paid. (1.5 pts.) B6 words

Answer 1

S from Year 1 to lo dividend per year = $ 1.34 is Dividend at the end of year 11 = $1.80 A & growth rate after 11th dividend = 2 % Required return = 14 % via @ fair price of Stack today h = PV of all future dividendy = DX PUAT (14%, 10)+ (Dit ) EN + where , DX PLAF (14%, 10) is present Value of first to yeary dividend Dil = formula for Constant t -g grewing dividend Hence, fair price = 1.34 X PU AF (19%, 10) + (680. 17-47CM I la 1014-002 1.14 b Stock Price after 13 Yeay or at the end of 13 year from now = Diy where, Dindinicand in 14th = 1.80 x (1.0%) Jag 0.14 - 0.02 15.92