Question

Etling Inc.'s dividend is expected to grow at 7% for the next two years and then...

Etling Inc.'s dividend is expected to grow at 7% for the next two years and then at 4% forever. If the current dividend is $3 and the required return is 16%, what is the price of the stock?

Select one:

a. $29.45

b. $25.54

c. $26.15

d. $27.44

e. $25.10

Bond ratings issued by DBRS specifically account for inflation risk.

Select one:

True

False

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Homework Answers

Answer #1
Year Dividend Dividend PV factor PV of all dividends
1 3*107% 3.21 0.862069     2.7672
2 3.21*107%             3.4347 0.743163     2.5525
2           29.7674 0.743163 22.1220
Total PV        27.44
Current Dividend                     3.4347
Rate of return 16.00%
Growth Rate 4%
Present value of all dividends til infinity at year 2
=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
= 3.4347 *(1+0.04)/(0.16-0.04)
29.7674
So share price will be 27.44 and hence option D is correct
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