Lohn Corporation is expected to pay the following dividends over the next four y

Question

Lohn Corporation is expected to pay the following dividends over the next four years: $12, $8, $7, and $2.50. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 12 percent, what is the current share price? (Round your answer to 2 decimal places. (e.g., 32.16))

Lohn Corporation is expected to pay the following dividends over the next four years: $12, $8, $7, and $2.50. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 12 percent, what is the current share price? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Current Share Price = 12/(1+.12)^1 + 8/(1+.12)^2 + 7/(1+.12)^3 + 2.50/(1+.12)^4 + 2.50*(1+.05)/(.12-.05)*(1+.12)^4 = 47.50

Answer is 47.50.

Thanks.

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