Question

Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $23.00, $15.00, $8.40 and $3.00. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the stock is 20 percent, what is the current share price?

Answer 1

Solution tven, .Car Expectedvklend 82.3.00 $15.00 2 3 $3.D0 ate_individend -foreve f. o.03 Atu Naads ao%.ORD.R0 Requivrd Relam on th stock ( ke) Shape orice Nen constant owth 3 Constart riuth@ 3% Time 2 $15.00 $300 $3.00 $3.00 AL03 $3.00 X032 Dviderd P4 ke- 3.00(03)3.0g Pu $3.00 (1003) 0.17 O20 0.03 Pyoti8.176 Py118 1818 thestocu a» he Presesni Valne Preent valul The total value Plus he Pjce at time 4,Py the t four clivielerdh D2 Po (1+K)5te) (+e) tke) $3.00 $10.18 Po $23 + T+0.20) 0.2) +020)5 +0.20)* +0-20) 12

P $23 20) $1S 20) $3.00 1-20) $8.40 s18.10 120)3 20 Po 9.1666 +l0.4167 +$4.0611 +$.4yca+$8.7679 PO 44.6586 $44. G6 is thu 44. 66, today Ihe Value A Hestock $44.66 Curemt Shape price