Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $3.00...
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $3.00 per share in 12 years, and you expect dividends to grow perpetually at 4 percent per year thereafter. If the discount rate is 12 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Homework Answers
Value after year 12=(D12*Growth Rate)/(Discount rate-Growth rate)
=(3*1.04)/(0.12-0.04)
=$39
Hence current value=Future dividends and value*Present value of discounting factor(rate%,time period)
=3/1.12^12+39/1.12^12
=$10.78(Approx).
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