Question

Tre last dMoend paid ay Gzo was OMdends ave expecred to Mcrease at 601. a year for d two years The requred rale of rehm is l0% 57 and Men morease at a steady rae Cateetate ne expecto adene S year Srota 25 Calculate the hanzan (cantnong/ltomrial vale H.S0 XHSS 99 45 T0 Colculake the prnitabda HSS 1S.4S 94. S0 Loo 79.25

Answer 1

Year 1 dividend = 2 (1 + 50%) = 3

Year 2 dividend = 3 (1 + 50%) = 4.5

Year 3 dividend = 4.5 (1 + 5%) = 4.725

1)

Horizon value = D3 / required rate - growth rate

Horizon value = 4.725 / 0.1 - 0.05

Horizon value = 4.725 / 0.05

Horizon value = $94.50

2)

Price today = 3 / (1 + 0.1)¹ + 4.5 / (1 + 0.1)² + 94.5 / (1 + 0.1)²

Price today = 2.727 + 3.719 + 78.0992

Price today = $84.55