Fey fashions expects the following dividend pattern over the next 7 yrs. Yr1-$1.

Question

Fey fashions expects the following dividend pattern over the next 7 yrs.
Yr1-$1.00 Yr2-$1.10 Yr3-$1.21 Yr4-$1.33 Yr5-$1.46 Yr6-$1.61 Yr7-$1.77
The company will have a constant dividend of $2.00 forever. What is the stock’s price today of an investor wants to earn 21%?

Fey fashions expects the following dividend pattern over the next 7 yrs.
Yr1-$1.00 Yr2-$1.10 Yr3-$1.21 Yr4-$1.33 Yr5-$1.46 Yr6-$1.61 Yr7-$1.77
The company will have a constant dividend of $2.00 forever. What is the stock’s price today of an investor wants to earn 21%?


Yr1-$1.00 Yr2-$1.10 Yr3-$1.21 Yr4-$1.33 Yr5-$1.46 Yr6-$1.61 Yr7-$1.77
The company will have a constant dividend of $2.00 forever. What is the stock’s price today of an investor wants to earn 21%?

Explanation / Answer

.56289     [1.46*.38554]

**Terminal value at year 7 :Constant dividend /Rs

            = 2/.21

           = 9.52381

year Dividend Rs @ 21% Present value   [dividend *Rs] 1 1 .82645 .82645 2 1.1 .68301 .75131    [1.1*.68301] 3 1.21 .56447 .68301    [1.21*.56447] 4 1.33 .46651 .62046     [.46651*1.33] 5 1.46 .38554

.56289     [1.46*.38554]

6 1.61 .31863 .51299 7 1.77 .26333 .46609 Terminal value at year 7 9.52381 .26333 2.50790 Stock price today 6.93

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