Question

Tattletale News Corp. has been growing at a rate of 20% per year, and you expect this growth rate in earnings and dividends to continue for another 3 years.

A. If the last dividend paid was $10, what will the next dividend be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Dividend

B. If the discount rate is 21% and the steady growth rate after 3 years is 2%, What should the stock price be today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Stock Price

Answer 1

Next dividend= 10*1.20=$12.00

B)

Year	Div	Discount factor	Present value
1	$    12.00	0.909091	$    10.91
2	$    14.40	0.826446	$    11.90
3	$    17.28	0.751315	$    12.98
4	$    17.63
	Terminal	$    92.77	$    69.70
		Total	$ 105.49

Terminal Value = 17.63/90.21-0.03)=92.77
This is terminal value at end of year 3