Question

JTBC, Inc. just paid $2.00 dividend. Dividends are expected to grow at a 20% rate for...

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?

Homework Answers

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

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