10.00 points Maloney, Inc., has an odd dividend policy. The company has just pai

Question

10.00 points Maloney, Inc., has an odd dividend policy. The company has just paid an annual dividend of $7 per share and has announced that it will increase the dividend by $5 per year for each of the next five years, and then never pay another dividend. If you require an annual return of 12 percent on the company's stock, how much will you pay for a share today? Note: the $7 dividend has already been paid, so you should ignore it in the present value calculations. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price References eBook & Resources Worksheet Leaning obiaclive: 0-01 How stock prices depend on future aovikdends and dividend growth Difficulty: Intermediate section 13onmon StockVaua O Type here to search

Explanation / Answer

Current share price=Future dividends*Present value of discounting factor(12%,time period)

=12/1.12+17/1.12^2+22/1.12^3+27/1.12^4+32/1.12^5

which is equal to

=$75.24(Approx).

Year Dividend 1 (7+5)=12 2 (12+5)=17 3 (17+5)=22 4 (22+5)=27 5 (27+5)=32

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