Question

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.20 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 10 percent on the company's stock.

a. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. What will the stock price be in 3 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c. What will the stock price be in 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer #1

ans a) | ||||||||

we can use divided growth model to compute the share price | ||||||||

as per DDM | ||||||||

price of stock = Expected divided next year/(required rate - growth rate) | ||||||||

expected dividend next year = 1.2*104% | 1.248 | |||||||

Price = | =1.248/(10%-4%) | |||||||

$ 20.80 | ||||||||

ans b) | Price after 3 year = D4/(required rate - growth rate) | |||||||

D4 = 1.2*(104%)^4 | $ 1.40 | |||||||

Price = | =1.4/(10%-4%) | |||||||

$ 23.40 | ||||||||

ans c) | Price after 10 year = D11/(required rate - growth rate) | |||||||

D11 = 1.2*(104%)^11 | $ 1.85 | |||||||

Price = | =1.85/(10%-4%) | |||||||

$ 30.79 | ||||||||

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Please show steps for how to solve in Excel

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