Question

JTBC, Inc. just paid $2.00 dividend. Dividends are expected to grow at a 20% rate for the next four years. After that, the company has stated that the annual dividend will be $1.00 per share indefinitely. The required rate of return is 10%.

a) What is the current stock price?

Answer 1

year	Dividend	PVF10%	Dividend *PVF
1	2(1+.20)= 2.4	.90909	2.1818
2	2.4(1+.20)=2.88	.82645	2.3802
3	2.88(1+.20)=3.456	.75131	2.5965
4	3.456(1+.20)=4.1472	.68301	2.8326
Terminal value at year 4	10	.68301	6.8301
CURRENT STOCK PRICE			16.82

**Terminal value at year 4 : Constant dividend /Rs

                   = 1 / .10

                    = $ 10

**Find PVF using the formula 1/(1+i)^n or from present value table