1. The Jackson-Timberlake Wardrobe Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on the company's stock, what is the current price? What will the price be in three years? In 15 years?

Question

Business

Jamie Mccullough

11 July, 14:40

1. The Jackson-Timberlake Wardrobe Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on the company's stock, what is the current price? What will the price be in three years? In 15 years?

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Answers (1)

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Taffy · Answer 1

1.$34.4

2.$38.70

3.$61.95

Explanation:

1. Current price=D1 / (Required return-Growth rate)

= (2.15*1.04) / (0.105-0.04) = $34.4

Therefore the answer is $34.4

We use the following formula:

A=P (1+r/100) ^n

where

A=future value

P=present value

r=rate of interest

n=time period.

2. A=$34.4 * (1.04) ^3

=$38.70 (Approximately).

Therefore the answer is 38.70

3. A=$34.4 * (1.04) ^15

=$61.95 (Approximately).

Therefore the answer is $61.95