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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

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