Question

# The Jackson-Timberlake Wardrobe Co. just paid a dividend of \$1.20 per share on its stock. The...

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.)

 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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