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farmer’s market inc. just paid an annual dividend of $5 on its stock. the growth rate...

farmer’s market inc. just paid an annual dividend of $5 on its stock. the growth rate in ... Your question has been answered Let us know if you got a helpful answer. Rate this answer Question: Farmer’s Market Inc. just paid an annual dividend of $5 on its stock. The growth rate in divide... Farmer’s Market Inc. just paid an annual dividend of $5 on its stock. The growth rate in dividends is expected to be a constant 5% per year indefinitely. Investors require a 10% return on the stock for the first 3 years, a 7% return for the next 5 years, and a 8% return thereafter. What is the current price per share?

Homework Answers

Answer #1
Year Dividend (D) Present value factor D*PVF
1 5(1+.05)=5.25 PVF10%,1 = .90909 4.7727
2 5.25(1+.05)= 5.5125 PVF10%,2= .82645 4.5558
3 5.5125(1+.05)=5.7881 PVF10%,3=.75131 4.3487
4 5.7881(1+.05)= 6.0775 PVF7%,4=.76290 4.6365
5 6.0775(1+.05)=6.3814 PVF7%,5= .71299 4.5499
6 6.3814(1+.05)=6.7005 PVF7%,6=.66634 4.4648
7 6.7005(1+.05)=7.0355 PVF7%,7=.62275 4.3814
8 7.0355(1+.05)=7.3873 PVF7%,8= .58201 4.2995
Terminal value at year 8 258.5555 .58201 150.4819
Current price 186.49

tERMinal value :D8(1+g)/(Rs-g)

          = 7.3873(1+.05)/(.08-.05)

       = 7.3873 *1.05 /.03

        = 258.5555

**Present value factor can be find from present value table or using the formula 1/(1+i)^n

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