ANSWER IS NOT $18.64 EITHER You own a company that competes with Old World DVD C

Question

ANSWER IS NOT $18.64 EITHER

You own a company that competes with Old World DVD Company. Instead of selling DVDs, however, your company sells music downloads from a Web site. Things are going well now, but you know that it is only a matter of time before someone comes up with a better way to distribute music. Your company just paid a $1.76 per share dividend, and you expect to increase the dividend 9 percent next year. However, you then expect your dividend growth rate to begin going down-to 6 percent the following year, 2 percent the next year, and to 2 percent per year thereafter. Based upon these estimates, what is he alue of a s are of your comp m k Asia e a e equ rate of return is 13 percent. (Round dividends in intermediate calculations to 4 decimal places, e.g. 1.5325 and final answer to 2 decimal places, e.g.15.25.) Value of a share 203.64

Explanation / Answer

Value of share = 14.12

13.00% Cash flows Year Discounted CF                            -   0 0.00                       1.92 1 1.70                       2.03 2 1.59                       2.07 3 1.44                     13.55 3 9.39

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