Homework Answers
Current Dividend:D0
D1=(1.3)D0
D2=(1.3)(1.35)D0
=1.755D0
D3=(1.755)(1.25)D0
=2.193D0
D4=(2.193)(1.18)D0
=2.588D0
D5=2.588D0(1.07)
=2.7698D0
Applying Gordon Growth Stable Formula:
2.7968D0/(0.18-0.07)
=2.7968D0/0.11
=25.180D0
Calculating present value for each and equating to market
price:
(1.3 D0)/1.18 + (1.755)D0/(1.18)"2 + (2.193)Do/(1.18)"3 +
(2.588)Do/(1.18)"4 + (25.18)D0/(1.18)"5=45.65
=(1.101 + 1.260 +1.334 +1.335 + 11.04) D0
:16.073D0=45.65
D0=45.65/16.07
D0 = 2.84
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