Martin's Yachts is expected to pay annual dividends of $1.40, $1.75, and $2.00 a share over the next three years, respectively. After that, the dividend is expected to remain constant. What is the current value per share at a discount rate of 14 percent?

Question

Business

Terrell Giles

27 May, 00:12

Martin's Yachts is expected to pay annual dividends of $1.40, $1.75, and $2.00 a share over the next three years, respectively. After that, the dividend is expected to remain constant. What is the current value per share at a discount rate of 14 percent?

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Answers (1)

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Jayvon Ortiz · Answer 1

Po = D1/1+ke + D2 / (1+ke) 2 + D3 / (1+ke) 3

Po = $1.40/1+0.14 + 1.75 / (1+0.14) 2 + $2 (1+0.14) 3

Po = $1.2281 + $1.3466 + $1.34998

Po = $3.92

Explanation:

The current value per share is equal to dividend paid in each year discounted at the appropriate cost of equity capital of the firm.

Po = Current value per share, D represents dividend paid and ke = return on equity (discount rate)