Leisure Lodge Corporation is expected to pay the following dividends over the ne

Question

Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $21, $15, $6.4 and $2.9. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the stock is 18 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $21, $15, $6.4 and $2.9. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the stock is 18 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $21, $15, $6.4 and $2.9. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the stock is 18 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

current share price = D1/(1+r) +  D2/(1+r)^2 +  D3/(1+r)^3 +  D4/(1+r)^4  + (D5/(r-g))/(1+r)^4

current share price = 21/1.18 + 15/1.18^2 + 6.4/1.18^3 + 2.9/1.18^4 + (2.9/(18%-3%))/1.18^4

current share price = $ 43.93

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