Jon\'s Catering is growing at a very fast rate. As a result, the company expects
ID: 2686789 • Letter: J
Question
Jon's Catering is growing at a very fast rate. As a result, the company expects to increase its dividend to $.45, $.95, $1.60, and $2.15 over the next four years, respectively. After that, the dividend is projected to increase by 6 percent annually. The last annual dividend the firm paid was $.30 a share. What is the current value of this stock if the required return is 17 percent? a. $12.97 b. $13.13 c. $13.77 d. $14.28 e. $14.58 To whoever answers this can you please write down the calculator inputs please? I'd like to be able to do these on my own and giving me the answer alone doesn't help me. Thank you.Explanation / Answer
We have g=6% Ks = 17% D0=$0.30 D1= $0.45 D2=$0.95 D3= $1.60 D4=$2.15 Constant Growth end at Y4 So P4= D5/(Ks-g) = 2.15/(17%-6%) = $19.55 Using DCF, P0 = D1/(1+ks)^1 + D2/(1+Ks)^2 + D3/(1+Ks)^3+ D4/(1+Ks)^4+ PV of Horizon Value P4 ie P0 = 0.45/(1+17%)^1 + 0.95/(1+17%)^2 +1.60/(1+17%)^3 + 2.15/(1+17%)^4 + 19.55/(1+17%)^4 = $13.77 ...............Ans (c)
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