Question

Rework Table 7.4 for horizon years 1, 2, 3, and 10, assuming that investors expect the dividend and the stock price to increase at only 6% a year and that each investor requires the same 12% expected return.

What value would Dritter place on the stock and what about Zehnte who has a 10-year horizon? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

TABLE 7.4 Value of Blue Skies Horizon (years) PV (dividends) $2.68 5.26 7.75 22.87 38.76 49.81 62.83 73.02 PV (terminal price) 72.32 69.74 67.25 52.13 36.24 25.19 12.17 1.98 -Value per Share + $75 75 75 75 75 75 75 75 2 10 20 30 50 100

Answer 1

Expected Future Values Present Values Yeai Stock Dividend Total lative Dividends Future Pric Total 2 Horizon Dividend (DIV) 75.00 Period (H) 1 79.50 84.27 89.33 4 94.69 5 100.37 6 106.39 7 112.77 8 119.54 9 126.71 10 134.31 11 142.37 12 150.91 13 159.97 14 169.57 15 179.74 16 190.53 17 201.96 18 214.08 19 226.92 20 240.54 4.50 M2+(M2 0.06) 4.77M3+(M3*0.06)+N3+(N3*0.06) 0 75.00 79 50 75.00 84.00 89.04 94.38 100.05 141.92 254.15 ,459.71 26.888.09 75 72.32 75 75 2.68 5.26 7.75 22.87 38.76 49.81 62.83 73.02 5.06 5.36 5.68 6.02 6.38 6.77 44(D4-0.06) 69.74 67.25 2 4.77-+85+(B5-0.06) 84.27-+05+(D5"0.06) 5.06 B.) 89.33 (D6 0.06) 5 36堩14B7"о.06) 94 69-+D74(D70.06) 7.60洲12 75 52.1375 75 36.24 25.19 12.17 1.98 134.31 M12 240.54M22 1,381 51-1152 25,447.66+M102 13.62N22 78 20 52 ,440.43N102 20 75 75 100 7.60 8.06 8.54 9.05 9.60 10.17 10.78 11.43 12.12 12.84 13.62 tions Dividends increase at 6% per year compounded Capitalization rate is 12% 1. 2. 161 18 19 20

KL M 0 14.43 21 254.9714 1 270.27 23 286.48 16.22 24 303.6717.19 25 321.89 18.22 26 341.20 19.31 27 361.68 20.47 28 383.38 21.70 29 406.38 30 430.76 4.38 31 45661 25.85 32 484.00 27.40 3 513.04 29.04 34 543.83 30.78 35 57646 3263 36 611.04 7 647.7 38 686.57 39 727.76 41.19 40 771.43 43.67 41 817.71 46.29 42 866.78 49.06 43 918.78 52.01 44 973.91 55.13 45 1,032.35 58.43 34.59 38.86

94 66 60 77 20 8 86 4 2 65 93 8 6 2 4 437 BO 4652 N65 69 7 8 8 8 3 94112244 57 66 76 29 9 5 3 5 0 2 4 13 778 92 03 8 52 8 6 6 8 53 10 30 90 69 4 1 2222222333334 ' s 53 54 55 56 57 s s 60 61 62 63 64 65 66 66-69 70-71 72

72 4,978.33 281.79 3 5,277.03 298.70 74 5,593.65 316.62 5 5,929.27 335.62 76 6,285.03 355.76 77 6,662.13 377.10 78 7,061.85 399.73 79 7,485.57 423.71 80 7,934.70 449.13 81 8,410.78 476.08 82 8,915.43 504.65 83 9,450.35 534.93 84 10,01738 567.02 85 10,618.42 601.04 86 11,255.52 637.11 87 11,930.85 675.33 88 12,646.71 89 13,405.51 758.80 90 14,209.84 804.33 91 15,062.43 852.59 92 15,966.17 903.75 93 16,924.14 957.97 94 17,939.59 1,015.45 95 19,015.97 1,076.38 0 6 20,156.93 1,140.96 97 21 366 34 1209 42

0 94 17,939.59 1,015.45 95 19,015.97 1,076.38 96 20,156.93 1,140.96 97 21,366.34 1,209.42 98 22,648.32 1,281.98 99 24,007.22 1,358.90 100 25,447.66 1,440.43 2 101 112 113 114 115 119