Question

# Moody Farms just paid a dividend of \$4.00 on its stock. The growth rate in dividends...

Moody Farms just paid a dividend of \$4.00 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for the next three years, and a return of 11 percent thereafter. What is the current share price?

P0 = [{D0 x (1 + g)} / (1 + r1)] + [{D0 x (1 + g)2} / (1 + r1)2] + [{D0 x (1 + g)3} / (1 + r1)3] +

[{D0 x (1 + g)4} / {(1 + r1)3(1 + r2)}] + [{D0 x (1 + g)5} / {(1 + r1)3(1 + r2)2] +

[{D0 x (1 + g)6} / {(1 + r1)3(1 + r2)3] + [{D0 x (1 + g)7} / {(rC - g)(1 + r1)3(1 + r2)3]

= [(\$4 x 1.06) / 1.15] + [(\$4 x 1.062) / 1.152] + [(\$4 x 1.063) / 1.153] + [(\$4 x 1.064) / (1.153 x 1.13)]

+ [(\$4 x 1.065) / (1.153 x 1.132)] + [(\$4 x 1.066) / (1.153 x 1.133)] +

[(\$4 x 1.067) / {(0.11 - 0.06)(1.153 x 1.133)}]

= \$3.69 + \$3.40 + \$3.13 + \$2.94 + \$2.76 + \$2.59 + \$54.82 = \$73.31

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