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?
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
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