Question

1.

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.32 per share on its stock. The dividends are expected to grow at a constant rate of 7 percent per year indefinitely.

Required:
(a)	If investors require a 15 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price? what will the price be in 17years?

Answer 1

Dividend discounting method is used to find the share present value by discounting the predicted dividend

Formula is,

Value of share = (Dividend per share/ Discount rate) -Dividend growth rate

Let's put all the values in the formula

= 1.4124/ 0.15 -0.07

= 1.4124/ 0.08

= 17.66

So the price of the stock is $17.66

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Hope that helps.

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