Maloney, Inc., has an odd dividend policy. The company has just paid a dividend of $5...
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Maloney, Inc., has an odd dividend policy. The company has just paid a dividend of $5 per share and has announced that it will increase the dividend by $6 per share for each of the next five years, and then never pay another dividend. If you require a return of 12 percent on the company’s stock, how much will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Current share price | $ |
Homework Answers
| Year | Dividend |
| 1 | (5+6)=11 |
| 2 | (11+6)=17 |
| 3 | (17+6)=23 |
| 4 | (23+6)=29 |
| 5 | (29+6)=35 |
Hence current price=Future dividends*Present value of discounting factor(rate%,time period)
=11/1.12+17/1.12^2+23/1.12^3+29/1.12^4+35/1.12^5
=$78.03(Approx)
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