Bayou Okra Farms just paid a dividend of $3.50 on its stock. The growth rate in
ID: 2748797 • Letter: B
Question
Bayou Okra Farms just paid a dividend of $3.50 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for the next three years, and a return of 9 percent thereafter. What is the current share price?
Current Share Price?
Bayou Okra Farms just paid a dividend of $3.50 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for the next three years, and a return of 9 percent thereafter. What is the current share price?
Current Share Price?
Explanation / Answer
Where
Year Previous dividend Growth rate Current dividend Required rate Terminal value Total CF Discount factor Discounted value 1 3.5 5% 3.675 13% 3.675 1.13 3.252212 2 3.675 5% 3.85875 13% 3.85875 1.2769 3.021967 3 3.85875 5% 4.0516875 13% 4.051688 1.442897 2.808023 4 4.0516875 5% 4.254271875 11% 4.254272 1.51807 2.802421 5 4.254271875 5% 4.466985469 11% 4.466985 1.685058 2.650938 6 4.466985469 5% 4.690334742 11% 123.121287 127.8116 1.870415 68.33331 7 4.690334742 5% 4.924851479 9% Share price= Sum of discounted value= 82.86887Related Questions
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