Question

Business Solutions is expected to pay its first annual dividend of $.84 per share in Year...

Business Solutions is expected to pay its first annual dividend of $.84 per share in Year 3. Starting in Year 6, the company plans to increase the dividend by 2 percent per year. What is the value of this stock today, Year 0, at a required return of 14.4 percent?

$5.01 $8.09 $8.29 $7.03 $9.34

How do you solve this on the financial calculator?

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Homework Answers

Answer #1

Solution -

DPS3 = 0.84

DPS4 = 0.84

DPS5 = 0.84

DPS6 = DPS5 (1+G)

DPS6 = 0.84 (1+0.02)

DPS6 = 0.86

Terminal value at the year end 5 =

Terminal Value at the year end 5 =

Terminal Value at the end of Year 5 = $6.91

To calculate current price of stock -

Current price = Current Price =

Current Price = $5.01

Hence, the correct answer is point A i.e. $5.01

If you have any query related to answer, then please feel free to ask me in a comment. Thanks. Please Rate.

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