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Problem 6-19 Multiple Growth Rates (L01, CFA6) Leisure Lodge Corporation is expected to pay the following...


Problem 6-19 Multiple Growth Rates (L01, CFA6) Leisure Lodge Corporation is expected to pay the following dividends over the
Problem 6-19 Multiple Growth Rates (L01, CFA6) Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $18.00, $10.00, $8.00 and $2.60. Afterwards, the company pledges to maintain a constant 6 percent growth rate in dividends forever. If the required return on the stock is 12 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Share price
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Answer #1

Current Price =PV of CFs from it.

P4 = D4(1+g) / [ Ke - g ]

= 2.60(1.06) / [ 12% - 6% ]

= 2.1836 / 6%

= 36.39

Price Today:

Year CF PVF @12% Disc CF
1 $   18.00     0.8929 $   16.07
2 $   10.00     0.7972 $      7.97
3 $      8.00     0.7118 $      5.69
4 $      2.60     0.6355 $      1.65
4 $   36.39     0.6355 $   23.13
Price Today $   54.52
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