Thirsty Cactus Corp. just paid a dividend of $1.30 per share. The dividends are

Question

Thirsty Cactus Corp. just paid a dividend of $1.30 per share. The dividends are expected to grow at 23 percent for the next eight years and then level off to a growth rate of 6 percent indefinitely. If the required return is 12 percent, what is the price of the stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

Thirsty Cactus Corp. just paid a dividend of $1.30 per share. The dividends are expected to grow at 23 percent for the next eight years and then level off to a growth rate of 6 percent indefinitely. If the required return is 12 percent, what is the price of the stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Calc all dividends, calc price IN year 8, discount the cash flows....
D1 = 1.30(1.23)
D2 = D1(1.23) and so on for 8 years
D9 = D8(1.06)

Price IN year 8 [aka P8] = D9/(r - g) = D9/(0.12 - 0.06)

Price today = D1/1.12 + D2/1.12^2 + ....+D8/1.12^8 + P8/1.12^8
the dots...

mean fill in the intervening discounted dividends - e.g. D3/1.12^3

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.