Question

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?

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