Jenny Banks is interested in buying the stock of Fervan, Inc., which is increasi

Question

Jenny Banks is interested in buying the stock of Fervan, Inc., which is increasing its dividends at a constant rate of 9.5 percent. Last year the firm paid a dividend of $2.65. The required rate of return is 17.0 percent.

What is the current value of this stock? (Do not round intermediate calculations. Round answer to 2 decimal places, e.g. 15.25.)

Current value -?

What should be the price of the stock in year 5? (Do not round intermediate calculations. Round answer to 2 decimal places, e.g. 15.25.)

Price of stock -?

Explanation / Answer

current price = 2.65 * 1.095 / ( 0.17 - 0.095) = 38.69

price after 5 years = 38.69 * 1.095^5 = 60.91

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