Apocalyptica Corporation is expected to pay the following dividends over the nex

Question

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $3, $10, $15, and $3.08. Afterwards, the company pledges to maintain a constant 5 percent growth rate in dividends, forever.

If the required return on the stock is 11 percent, what is the current share price?

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $3, $10, $15, and $3.08. Afterwards, the company pledges to maintain a constant 5 percent growth rate in dividends, forever.

Explanation / Answer

P = 3/1.11 + 10/1.11^2 + 15/1.11^3 3.08/1.11^4 + (3.08*(1+0.05)/(0.11-0.05))/1.11^4 = $59.32

From DDM P = D(0)*(1+g)/(r-g)

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