Question

1. D₀ = $6.00; D₁ = 6.25, D₂ = 6.35, D₃ = 6.5, D₄ = 6.75, D₅ = 7, D₆ = 7.25, D₇ = 7.50, D₈ = 7.70, and constant growth 4% thereafter. k_s = 16% Find P₀.

2. D₀ = $3.00; g₁ = 5%, g₂ = -2%, g₃ = 5%, g₄ = 6%, g₅ = 6%, g₆ = 4%, and constant growth -4% thereafter. k_s =14%. Find P_{1 .}

_{Please show without excel formulas}

Answer 1

Answer to Question 1:

D9 = D8 * (1 + g)
D9 = $7.70 * 1.04
D9 = $8.008

P8 = D9 / (ks - g)
P8 = $8.008 / (0.16 - 0.04)
P8 = $66.7333

P0 = $6.25/1.16 + $6.35/1.16^2 + $6.50/1.16^3 + $6.75/1.16^4 + $7.00/1.16^5 + $7.25/1.16^6 + $7.50/1.16^7 + $7.70/1.16^8 + $66.7333/1.16^8
P0 = $49.67

Answer to Question 2:

D1 = D0 * (1 + g1)
D1 = $3.00 * 1.05
D1 = $3.15

D2 = D2 * (1 + g2)
D2 = $3.15 * (1 - 0.02)
D2 = $3.087

D3 = D2 * (1 + g3)
D3 = $3.087 * 1.05
D3 = $3.241

D4 = D3 * (1 + g4)
D4 = $3.241 * 1.06
D4 = $3.435

D5 = D4 * (1 + g5)
D5 = $3.435 * 1.06
D5 = $3.641

D6 = D5 * (1 + g6)
D6 = $3.641 * 1.04
D6 = $3.787

D7 = D6 * (1 + g)
D7 = $3.787 * (1 - 0.04)
D7 = $3.636

P6 = D7 / (ks - g)
P6 = $3.636 / (0.14 - (-0.04))
P6 = $20.20

P0 = $3.15/1.14 + $3.087/1.14^2 + $3.241/1.14^3 + $3.435/1.14^4 + $3.641/1.14^5 + $3.787/1.14^6 + $20.20/1.14^6
P0 = $22.18