Suppose the dividends for the Seger Corporation over the past six years were $1.

Question

Suppose the dividends for the Seger Corporation over the past six years were $1.04, $1.12, $1.21, $1.29, $1.39, and $1.44, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method. Assume the market risk premium is 11.1 percent, Treasury bills yield 3.9 percent, and the projected beta of the firm is .91. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Suppose the dividends for the Seger Corporation over the past six years were $1.04, $1.12, $1.21, $1.29, $1.39, and $1.44, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method. Assume the market risk premium is 11.1 percent, Treasury bills yield 3.9 percent, and the projected beta of the firm is .91. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Dividend Growth Rate = (1.12 - 1.04)/1.04 = 7.7%
Similarly, for all the values Dividend growth rate is approximately 7.7%
Thus, Dividend Growth Rate = 7.7%

Ke = Rf + (Rm - Rf) * Beta = 3.9 + 11.1 * 0.91 = 14% (Since, Market Risk Premium = (Rm - Rf)

Expected Share Price = (1.44 * 1.077) / (0.14 - 0.077) = $24.62 per share

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