If Zenyatta Inc. has the following anticipated dividends: in year 1 of $4.00, in year 2 of $3.50, after that dividends are expected to grow at a 1.4% rate. What is a fair price if the required return is 5%

The fair price per share today is $96.40

Explanation:

The fair price per share can be calculated using the DDM approach whereby the expected future dividends are discounted back to calculate the fair value of the share today.

The fair price per share will be,

P0 or V = 4 / (1+0.05) + 3.5 / (1+0.05) ² + [ (3.5 * (1+0.014)) / 0.05 - 0.014] / (1+0.05) ²

Fair price per share = $96.40