conedt N4 CH.8 Question 9 (of 13 150 points MC Qu. 8-A7 NU YU announced today th

Question

conedt N4 CH.8 Question 9 (of 13 150 points MC Qu. 8-A7 NU YU announced today that they will begin paying annual d.. NU YU announced today that it will begin paying annual dvidends. The first divldend will be paid next year in the amount of $0.65a share. The following dividends will be $0.70, $0.85, and Su15 a share annualy for the following three years, respectively. Ater thet, dividends are projected to increase by 4.2 percent per year of this stock if your desired rate of neturn is 16 O $10.58 O $197 O $787 $10 81 O $1O16 Multiple Choice NU YU announced today that they will begin paying an MacBook Air 2 4 5 6

Explanation / Answer

$ 7.87

working:

Step-1:Calculation of present value of next four year's dividend Year Dividend Discount factor Present Value a b c=1.16^-a d=b*c 1 $           0.65            0.8621 $          0.56 2 $           0.70            0.7432 $          0.52 3 $           0.85            0.6407 $          0.54 4 $           1.15            0.5523 $          0.64 Total $          2.26 Step-2:Present Value of after year four's dividend Present Value = (D4*(1+g)/(Ke-g))*DF4 Where, = (1.15*(1+0.042)/(0.16-0.042))*0.5523 D4 $       1.15 = $          5.61 g 4.20% Ke 16% Step-3:Present value of all future dividends DF4      0.5523 Present Value of all future dividends = $              2.26 + $       5.61 = $              7.87 As per dividend discount model, price of stock is the present value of future dividends. So, Price of stock is $ 7.87

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