Wall Street is forecasting yearly dividends for FNC as follows: $1.00 (Year 1);
ID: 2675581 • Letter: W
Question
Wall Street is forecasting yearly dividends for FNC as follows: $1.00 (Year 1); $1.50 (year 2); $2.00 (Year 3); $3.00 (Year 4). The consensus estimate is that FNC shares will trade at $80 in four years.Wall Street is forecasting yearly dividends for FNC as follows: $1.00 (Year 1); $1.50 (year 2); $2.00 (Year 3); $3.00 (Year 4). The consensus estimate is that FNC shares will trade at $80 in four years. If the required return on the stock is 9%, calculate the value of FNC stock today. Show and submit all your work, then answer the following questions.
What is the discount rate you used in your work ?
Could the yearly FNC dividends be computed as an annuity ? Why, or why not ?
What is the total pv of the four yearly dividends ?
What is the pv of the forecasted share price ?
What is the total value of FNC today (pv of four dividends plus pv of forecasted share price) ?
Explanation / Answer
19 discount rate= 9% 20. yearly FNC dividends cannot be computed as an annuity since the dividends are not same for each year given. 21.PV of dividends= 1/1.09+(1.5/1.09^2)+(2/1.09^3)+(3/1.09^4)= $4.68 22. pv of the forecasted share price= 80/1.09^4= $56.67 23. total value of FNC today= 4.68+56.67= $61.354%
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