Nu-Tek is expanding rapidly. As a result, the company expects to pay annual dividends of $.62,.80, and $1.05 per share over the next three years, respectively. After that, the dividend is projected to increase by 4 percent annually. What is the current value of this stock if the required return is 16 percent? 1. $7.63 2. $9.67 3. $10.46 4. $6.58 5. $8.49

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Business

Kimberly Conrad

28 February, 00:04

Nu-Tek is expanding rapidly. As a result, the company expects to pay annual dividends of $.62,.80, and $1.05 per share over the next three years, respectively. After that, the dividend is projected to increase by 4 percent annually. What is the current value of this stock if the required return is 16 percent? 1. $7.63 2. $9.67 3. $10.46 4. $6.58 5. $8.49

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Doogie · Answer 1

1) $7.63

Explanation:

we must can determine the price of the stock by calculating the present value of the cash flows (dividends):

present value = $0.62/1.16 + $0.80/1.16² + $1.05/1.16³ + [ ($1.05 x 1.04) / (16% - 4%) ] = $0.53 + $0.59 + $0.67 + $9.10/1.16³ = $0.53 + $0.59 + $0.67 + $5.83 = $7.63