Apocalyptica Corporation is expected to pay the following dividends over the nex

Question

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.80, $16.80, $21.80, and $3.60. Afterwards, the company pledges to maintain a constant 5.75 percent growth rate in dividends, forever.

If the required return on the stock is 8 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.80, $16.80, $21.80, and $3.60. Afterwards, the company pledges to maintain a constant 5.75 percent growth rate in dividends, forever.

Explanation / Answer

Calcualtion of current share price

Price of the stock = D1/(1+Ke)^1+D2/(1+Ke)^2+D3/(1+Ke)^3+D4/(1+Ke)^4+D5/Ke-G*(1/1+Ke)^4

= 5.80/(1+0.08)^1+16.80/(1+Ke)^2+21.80/(1+0.08)^3+3.60/(1+0.08)^4+3.60(1+0.0575)/8%-5.75%*1/(1+0.0575)^4

=5.37+14.40+17.31+2.65 +(169.20*0.7503)

= 166.68

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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