Santa Klaus Toys just paid a dividend of $3.00 per share. The required return is 11.7 percent and the perpetual dividend growth rate is 3.9 percent. What price should this stock sell for five years from today?

P5=48.3860

Explanation:

Santa Klaus Toys

The Price of the stock 5 years from today will be:

P5=D6 / (r-g) =

D0 * (1+g) ^6 / (r-g)

Where

D0 = 3

g = 3.9%

r=11.7%

Hence:

P5=3 * (1+3.9%) ^6 / (11.7%-3.9%)

P5=3 * (1+0.039) ^6 / (0.117-0.039)

P5=3 * (1.039) ^6 / (0.078)

P5=3.77410/0.078

P5=48.3860