Lohn Corporation is expected to pay the following dividends over the next four y

Question

Lohn Corporation is expected to pay the following dividends over the next four years: $17, $13, $12, and $7.50. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 15 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Lohn Corporation is expected to pay the following dividends over the next four years: $17, $13, $12, and $7.50. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 15 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

115.5408

PV of D4 =D5/r-g

=(7.5*105%)/15%-5%

=78.75

Therefor current price of the share is $ 115.5408

Year Dividend PVF @ 15% Amount 1 17 0.869565217 14.78261 2 13 0.756143667 9.829868 3 12 0.657516232 7.890195 4 7.5 0.571753246 4.288149 4 7.875 0.571753246 78.75

115.5408

PV of D4 =D5/r-g

=(7.5*105%)/15%-5%

=78.75

Therefor current price of the share is $ 115.5408

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