c.$27.98
year | cash flow | present value factor @10% | cash flow * present value factor @10% |
1 | 1.50 *(1.08)=>1.62 | 1/(1.10)=>0.9091 | 1.472742 |
2 | 1.62*(1.08)=>1.7496 | 1/(1.10)^2=>0.8264 | 1.44586944 |
2 | 30.3264 (terminal value see note) | 1/(1.10)^2=>0.8264 | 25.061737 |
price | $27.98. |
working:
terminal value = year 2 dividend *(1 + constant growth rate) / (required return - growth rate)
1.7496 * (1.04) / (0.10-0.04)
=>30.3264
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no
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