Comfort Ice Cream has plans to pay decreasing annual dividends of $1.75, $1.60, and $1.45 over...
Comfort Ice Cream has plans to pay decreasing annual dividends of $1.75, $1.60, and $1.45 over the next three years, respectively. After that, the firm will increase the dividend by 4 percent each year. What is the value of this stock today at a discount rate of 12 percent?
Homework Answers
Value after year 3=(D3*Growth rate)/(Discount rate-Growth rate)
=(1.45*1.04)/(0.12-0.04)
=18.85
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=1.75/1.12+1.6/1.12^2+1.45/1.12^3+18.85/1.12^3
=$17.29(Approx).
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