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A stock is expected to pay the following dividends: $1 four years from now, $1.5 five...

A stock is expected to pay the following dividends: $1 four years from now, $1.5 five years from now, and $1.8 six years from now, followed by growth in the dividend of 8% per year forever after that point. There will be no dividends prior to year 4. The stock's required return is 13%. The stock's current price (Price at year 0) should be $____________.

Do not round any intermediate work, but round your final answer to 2 decimal places (ex: 12.34567 should be entered as 12.35).

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Answer #1

Terminal value at year 6 :D6(1+g)/(Rs-g)

                 1.8 (1+.08)/(.13-.08)

                 1.8 *1.08/.05

                   38.88

Value of stock today = [PVF 13%,4*D4]+[PVF13%,5*D5]+[PVF13%,6*D6]+[PVF13%,6*TV]

         =[.61332*1]+[.54276*1.5]+[.48032*1.8]+[.48032*38.88]

         = .61332+ .81414+ .864576+ 18.67484

            = $ 20.97 (ROUNDED )

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