Homework Answers
Growth of earnings and dividends = 2% = 0.02
Next year EPS = 11, Next year dividend = 6,
market capitalization rate = 12% = 0.12
Growth will stop after 4 years, yr 5 onwards Dividends = EPS
| Year | Dividend per share | EPS |
| 1 | 6 | 11 |
| 2 | 6.12 (6*1.02) | 11.22 (11*1.02) |
| 3 | 6.24 (6.12*1.02) | 11.44 (11.22*1.02) |
| 4 | 6.37 (6.24*1.02) | 11.67 (11.44*1.02) |
| 5 | 11.907 | 11.907 (11.67*1.02) |
Since growth is zero after 4 year,
Present value at EOY 4 = 11.907/0.12 = 99.225
Total present value = 6/1.12 + 6.12/1.122 + 6.24/1.123 + (6.37+99.225)/1.124
= 81.7850
= 81.79 (round to two decimal places)
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