A share of stock is expected to pay a dividend of $1.25 in Year 1. $2.00 in Year 2. $3.25 in Year 3. $5.00 in Year...

Question

Question

Answer 1

Answer #1

Step-1, Calculation of Dividend per share in Year 21

Here, we’ve Dividend per share in Year 4 (D4) = $5.00 per share

Therefore, the Dividend per share in Year 21 = D4 x (1 + g)¹⁷

= $5.00 per share x (1 + 0.05)¹⁷

= $5.00 per share x (1.05)¹⁷

= $5.00 per share x 2.292018

= $11.4601 per share

Step-2, The Price of the stock at Year 21 (P21)

Dividend Growth Rate after 21 years (g) = 5.00% per year

Required Rate of Return (Ke) = 12.00%

Therefore, the Price of the stock at Year 21 (P21) = D21(1 + g) / (Ke – g)

= $11.4601(1 + 0.05) / (0.12 – 0.05)

= [$11.4601 x 1.05] / 0.07

= $12.0331 / 0.07

= $171.90 per share

“Hence, the Price of the stock at Year 21 (P21) will be $171.90”

Answer 2

Similar Homework Help Questions

You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.00 a share at...

You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.00 a share at the end of the year (D1 = $2.00) and has a beta of 0.9. The risk-free rate is 3.7%, and the market risk premium is 5.0%. Justus currently sells for $44.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the...
TMZ will pay a dividend next year of $2.84 per share on its stock. The dividends...

TMZ will pay a dividend next year of $2.84 per share on its stock. The dividends are expected to grow at a constant rate of 1.85 percent per year. If investors require a rate of return of 10.4 percent, what will be the stock price in Year 12?
Richardson Brothers is expected to pay a $1.25 per share dividend at the end of the...

Richardson Brothers is expected to pay a $1.25 per share dividend at the end of the year (that is, D 1 = $1.25). The dividend is expected to grow at a constant rate of 7 percent a year. The required rate of return on the stock, r s, is 12 percent. What is the stock’s value per share? a. $11.15 b. $23.36 c. $26.75 d. $10.42 e. $25.00

The Herjavec Co just paid a dividend of 2.00 per share on its stock. The dividends...

The Herjavec Co just paid a dividend of 2.00 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's stock. The Herjavec Co.just paid a dividend of $2.00 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's...
7. The SMH Company is expected to pay a dividend of $1.25 per share at the...

7. The SMH Company is expected to pay a dividend of $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's required rate of return is 10.33%. What is the company's current stock price?
Oxxon Furniture is expected to pay a dividend of D1 = $1.25 per share at the...

Oxxon Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Oxxon's current stock price? $21.62 $23.45 $25.12 $28.90 $31.90

A stock is expected to pay a dividend of $2.00 at the end of the year...

A stock is expected to pay a dividend of $2.00 at the end of the year (i.e., D1 = $2.00), and it should continue to grow at a constant rate of 6% a year. If its required return is 15%, what is the stock's expected price 5 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.
The Francis Company is expected to pay a dividend of D, = $1.25 per share at...

The Francis Company is expected to pay a dividend of D, = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. If required rate of return is 13.35%. What is the company's current stock price? $13.44 $12.93 $17.01 $14.80 $18.03
5 pts A new tech stock is expected to pay a dividend of $1.00 per share...

5 pts A new tech stock is expected to pay a dividend of $1.00 per share next year (D1). Dividends will grow rapidly at 20% per year through Year 9 (D9 will be $4.30 per share). After that, dividends will grow at modest pace of $0.10 per year, forever (D10 is $4.40, etc.). If investors require a return of 15.20 percent, what shou ld the price of this stock be today? Answer in "XX.XX" format, with no additional punctuation. For...

Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of...

Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $57.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?