1.Thirsty Cactus Corp. just paid a dividend of $2.60 per share. The dividends ar

Question

1.Thirsty Cactus Corp. just paid a dividend of $2.60 per share. The dividends are expected to grow at 18 percent for the next eight years and then level off to a growth rate of 7 percent indefinitely. If the required return is 13 percent, what is the price of the stock today?

2. Chartreuse County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 17 percent per year for the next 10 years before leveling off at 4 percent into perpetuity. The required return on the company

2. Chartreuse County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 17 percent per year for the next 10 years before leveling off at 4 percent into perpetuity. The required return on the company

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Stock Price = 2.60*(1+18%)^1/(1+13%)^1 + 2.60*(1+18%)^2/(1+13%)^2 + 2.60*(1+18%)^3/(1+13%)^3 + 2.60*(1+18%)^4/(1+13%)^4 + 2.60*(1+18%)^5/(1+13%)^5 + 2.60*(1+18%)^6/(1+13%)^6 + 2.60*(1+18%)^7/(1+13%)^7 + 2.60*(1+18%)^8/(1+13%)^8 + 2.60*(1+18%)^8*(1+7%)/(1+13%)^8*(13% - 7%) = $90.96

-----

Part B:

Stock Price = 2.17*(1+17%)^1/(1+12%)^1 + 2.17*(1+17%)^2/(1+12%)^2 + 2.17*(1+17%)^3/(1+12%)^3 + 2.17*(1+17%)^4/(1+12%)^4 + 2.17*(1+17%)^5/(1+12%)^5 + 2.17*(1+17%)^6/(1+12%)^6 + 2.17*(1+17%)^7/(1+12%)^7 + 2.17*(1+17%)^8/(1+12%)^8 + 2.17*(1+17%)^9/(1+12%)^9 + 2.17*(1+17%)^10/(1+12%)^10 + 2.17*(1+17%)^10*(1+4%)/(1+12%)^10*(12% - 4%) = $71.47

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

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