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

Current share price = D1 (1+g)n / R - g

where R= Required return on the stock

g = growth rate in dividend

n = numbers of years dividend expected and

D1 = next year's dividend

So, the Current Share Price = 17 (1+ 0.05)4 / 0.15 - 0.05

= 17 * 1.2155 / 0.10

= 20.6636 / 0.10 = $206.63

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