Bayou Okra Farms just paid a dividend of $3.25 on its stock. The growth rate in
ID: 2776448 • Letter: B
Question
Bayou Okra Farms just paid a dividend of $3.25 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 14 percent for the first three years, a return of 12 percent for the next three years, and a return of 10 percent thereafter. What is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bayou Okra Farms just paid a dividend of $3.25 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 14 percent for the first three years, a return of 12 percent for the next three years, and a return of 10 percent thereafter. 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
Share Price today is $58.93 Statemnet showing Cash flows Particulars Time PVF Amount PV Cash inflows(Dividend) 1.00 0.8772 3.41 2.99 Cash inflows(Dividend) 2.00 0.7695 3.58 2.76 Cash inflows(Dividend) 3.00 0.6750 3.76 2.54 Cash inflows(Dividend) 4.00 0.6027 3.95 2.38 Cash inflows(Dividend) 5.00 0.5381 4.15 2.23 Cash inflows(Dividend) 6.00 0.4804 4.36 2.09 Cash inflows(Dividend) 7.00 0.4368 4.57 2.00 Cash inflows(Price) 7.00 0.4368 96.03 41.94 PV of Cash Inflows 58.93 Price at end of 7 Year = D8/(ke-g) Price at end of 7 Year = 4.80/(10%-5%) Price at end of 7 Year = 96.03 Time PVF PVF 1.00 0.88 2.00 1.14 0.77 3.00 1.14 0.67 4.00 1.12 0.60 5.00 1.12 0.54 6.00 1.12 0.48 7.00 1.10 0.44
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