Question

**Schnussenberg Corporation:**

Schnussenberg Corporation just paid a dividend of $0.98
(D_{0} = $0.98) per share and has a required rate of return
of 9.4%, and its dividends is expected to grow at 8.17% per
year.

**1.What is the company’s current stock price,
P0?**

**2. What is the company’s expected stock price in 6 years
(what is P _{6})?**

Answer #1

Current dividend paid=$0.98

required rate of return=9.4%

Dividend Growth rate=8.17%

As we know the formula for find out stock price

Kce=D1/P0+g

Here Kce=required rate of retuen ((hurdle rate in this case)

D1=nex year's dividend

g= dividend growth

puttin the values in the formula and solving:

0.094=0.98*(1+.0817)/P0+0.0817

P0=0.98*(1+0.0817)/(0.094-0.0817)=$8.618423

b) **Price of stock after 6 years**

0.094=0.98*(1+.0817)^7/P0+0.0817

**P0=0.98*(1+0.0817)/(0.094-0.0817)=$13.80603**

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