Question

Wii U announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $1 a share. The following dividends will be $1.2, and $1.37 a share annually for the following two years, respectively. After that, dividends are projected to increase by 4 percent per year. How much are you willing to pay today to buy one share of this stock if your desired rate of return is 12 percent?

Answer 1

And Given, Dividend paid bond next next year (at to 260 the end of the → 11/ shar for • • • Dividend in year 3 (3) 41.2 Dividend in year 41D) $1,37 After year 4 g (growth rate) - 4% rc rate of encturn) → 12% the stock - Present value of a PV of Da + PV d Ds + PV d Dy te + PV of the growing dividlands - 1 + 1.2 + 1.37 (1 + 0.12² (1+0012) 3 (1+0.124 + 1.37 C1+0.04) i 0.12 - 0.04 (1+0-12)4 I + lod + 1:37 1.2544 1,404 1.573 0.08 (1.573 = 0.797 + 0.854 + 0.8709 + 11.3195 13.8414 the stock is $13.8414 = Value of C o ., The