Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 26 p
ID: 2651493 • Letter: J
Question
Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 12 percent and the company just paid a dividend of $1.90, what is the current share price? (Round your answer to 2 decimal places. (e.g., 32.16))
Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 12 percent and the company just paid a dividend of $1.90, what is the current share price? (Round your answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Answer
Figures in $
Year
Dividend
value of the share
Cash flow
Disc. Rate -12%
Present value
A
B
C
D
C*D
A+B
0
-
1.9
-
-
-
-
1
1.9*1.26
2.39
0
2.39
0.89
2.14
2
2.39*1.26
3.02
0
3.02
0.80
2.40
3
3.02*1.26
3.80
67.15*
70.95
0.71
50.50
Current value of share
55.04
Value of share at end of year 3 = Dividend at end of year 4 / cost of capital – growth rate
= Dividend end of year 3 ( 1+growth rate) / 12% - 6%
= 3.801 ( 1+ 0.06) / 6%
= 4.029 / 6%
= $ 67.15*
Answer : The current share price is $ 55.04
Figures in $
Year
Dividend
value of the share
Cash flow
Disc. Rate -12%
Present value
A
B
C
D
C*D
A+B
0
-
1.9
-
-
-
-
1
1.9*1.26
2.39
0
2.39
0.89
2.14
2
2.39*1.26
3.02
0
3.02
0.80
2.40
3
3.02*1.26
3.80
67.15*
70.95
0.71
50.50
Current value of share
55.04
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.