Use financial calc if possible

Question

Question

business finance

Answer 1

Answer #1

value of stock = Present value of dividends + Horizontal value

Horizontal value = dividend next year/(Required return - growth rate)

=>

Horizontal value

= 2*1.2^3 * 1.06/(0.1-0.06)

= 91.584

value of stock = 2*1.2/1.1 + 2*1.2^2/1.1^2 + 2*1.2^3/1.1^3 + 91.584/1.1^3

= 75.97

Answer 2

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