Question

The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 16 percent a year for the next 4 years and then decreasing the growth rate to 6 percent per year. The company just paid its annual dividend in the amount of $1.60 per share. What is the current value of one share of this stock if the required rate of return is 7.10 percent?

Multiple Choice

• $220.03

• $279.17

• $280.77

• $212.18

• $221.63

please show working in excel if possible.

Answer 1

Cash flows $1.86 $2.15 $2.50 $2.90 $279.17 [email protected]% Present valu Year $1.73 $1.88 $2.03 $2.20 $212.18 $220.03 0.9337 0.8718 0.8140 0.7600 0.7600 2 4 (2.9*1.06)/(0.071-0.06) price at year 4 Stock's current price