Question

A7X Corp. just paid a dividend of $2.60 per share. The dividends are expected to grow at 18 percent for the next eight years and then level off to a growth rate of 7 percent indefinitely. If the required return is 13 percent, what is the price of the stock today? (Do not round intermediate calculations and round your answer to 2 decimal places)

The following need to be solved on Excel:

5 points a) Find the D's D. D D2 D DA D D D D. D, D10 b) Put the D's on a timeline (infinity) PULL FROM ABOVE. DO NOT HARDCODE 5 points 0 2 3 4 5 6 8 9 101 Infinity All YELLOW BOXES MAY NOT HAVE A Dividend!! ONLY PUT THE Ds on this timeline that an investor would receive if purchase at t=0. c) Show the "true math" of P, 5 points This should be entered as "text" in the yellow box below Treat each CF as an individual lump sum when showing the math. Enter as "text." d) Take care of infinity with the collapsed math. Find the price using the FIRST behaving dividend. (5 points) What are you obtaining What D are you using? Enter something like P3 or P4, etc. Enter something like DS or D6, etc. Put that Phere using "Collapsed math" = In This cell you should be CALCULATING A "P" PULL the "D" from above that you need to compute Pusing "Collapsed math" e) Show the "true math" of the P you obtained in part d. (5 points) Treat each CF as an individual lump sum when showing the math. Enter as "text." PULL ALL #s from above; DO NOT HARDCODE!!!! f) Put the D's and the P's on a finite timeline (5 points): D's on Row 128; "P" from part d on Row 129 1 2 0 3 5 6 7 8 9 Put D's on this row Put "p" on this row USE SUM FUNCTION USE SUM FUNCTION ON ROW 130!!!! Note: It is UP TO YOU TO DECIDE WHICH D's and P's go on this timeline above! That is, some of the yellow boxes above will NOT have a value in them. g) Final answer, P. 5 points THIS answer is what should go in CONNECT !!!

Answer 1

Solution:

1.Calculation of price of the stock today

First we need to find the dividend for each year till 9th year

Dividend for the year=Previous year dividend(1+growth rate)

Year	Dividend for year
1	$2.60(1+0.18)=$3.068	D1
2	$3.068(1+0.18)=$3.62	D2
3	$3.62(1+0.18)=$4.27	D3
4	$4.27(1+0.18)=$5.04	D4
5	$5.04(1+.18)=$5.95	D5
6	$5.95(1+0.18)=$7.02	D6
7	$7.02(1+0.18)=$8.28	D7
8	$8.28(1+0.18)=$9.77	D8
9	$9.77(1+0.07)=$10.45	D9

Terminal value at the end of 8th year(TV)=Dividend for 9the year/(Required return-Growth rate)

=$10.45/(0.13-0.07)

=$174.17

Stock price is the present value of dividends and terminal value.calculation is as follow;

Stock Price is;

=$3.068/(1+0.13)^1+$3.62/(1+0.13)^2+$4.27/(1+0.13)^3+$5.04/(1+0.13)^4+$5.95/(1+0.13)^5+$7.02/(1+0.13)^6+$8.28/(1+0.13)^7+$9.77/(1+0.13)^8+$174.17/(1+0.13)^8

=$90.91

therefore,price of the stock today is $90.91