1. Anton, Inc., just paid a dividend of $3.25 per share on its stock. The divide

Question

1. Anton, Inc., just paid a dividend of $3.25 per share on its stock. The dividends are expected to grow at a constant rate of 4.75 percent per year, indefinitely. Assume investors require a return of 10 percent on this stock.

What is the current price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

What will the price be in five years and in fourteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

What is the current price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Hi,

Please find the answer as follows:

Requirement 1:

Current Stock Price = D1/(ke - g)

D1 = 3.25*(1+.0475)

ke = 10%

g = 4.75%

Current Stock Price = 3.25*(1+.0475)/(.10 - .0475) = 64.85

Requirement 2:

Five Years = 64.85*(1+.0475)^5 = 81.79

Fourteen Years = 64.85*(1+.0475)^14 = 124.18

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

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