The Farmer's Market just paid an annual dividend of $5 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a 13 percent return on the stock for the first 3 years, a 9 percent return for the next 3 years, a 7 percent return thereafter. What is the current price per share

Question

Business

Jane Mahoney

3 October, 13:46

The Farmer's Market just paid an annual dividend of $5 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a 13 percent return on the stock for the first 3 years, a 9 percent return for the next 3 years, a 7 percent return thereafter. What is the current price per share

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Answers (1)

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Lawson Evans · Answer 1

The current price per share is $213.679

Explanation:

According to the given data, in order to calculate the current price per share we would have to use the following formula:

current price per share = 5x1.05/1.13 + (5x1.05^2/1.13^2) + (5x1.05^3/1.13^3) + (5x1.05^4/1.09^4) + (5x1.05^5/1.09^5) + (5x1.05^6/1.09^6) + { (5x1.05^7/[ (.07-.05) 1.09^3x1.13^3]} = $213.679

The current price per share is $213.679