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QUESTION 16 Leo Tech Inc. just paid a dividend of $13 to its stockholders. The dividend will grow at 8% over the next 6 years

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Answer #1

Price of stock = PV of CFs from it.

DIv Calculation:

Year Particulars CF Formula Calculation
1 D1 $   14.04 D0(1+g) 13*1.08
2 D2 $   15.16 D1(1+g) 14.04*1.08
3 D3 $   16.38 D2(1+g) 15.16*1.08
4 D4 $   17.69 D3(1+g) 16.38*1.08
5 D5 $   19.10 D4(1+g) 17.69*1.08
6 D6 $   20.63 D5(1+g) 19.10*1.08

P6 = D7 / Ke

= $ 20.63 / 5%

= $ 412.59

P0:

Year Particulars CF PVF @5% Disc CF
1 D1 $   14.04 0.952381 $   13.37
2 D2 $   15.16 0.907029 $   13.75
3 D3 $   16.38 0.863838 $   14.15
4 D4 $   17.69 0.822702 $   14.55
5 D5 $   19.10 0.783526 $   14.97
6 D6 $   20.63 0.746215 $   15.39
6 P6 $ 412.59 0.746215 $ 307.88
Price of Stock Today $ 394.06

Pls comment, if any further assistance is required.

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