1 answer

Whackamole corporation's share is trading in the open market. The company is expected to pay S5...

Question:

Whackamole corporations share is trading in the open market. The company is expected to pay S5 dividend next year, but the d
Whackamole corporation's share is trading in the open market. The company is expected to pay S5 dividend next year, but the dividend is expected to grow at 63 for another 4 years, but then decrease by 3% for another 5 years because of foresecable financial difficulties. But after that, the dividend is expected to grow again at 2%, which is roughly the expected GDP growth rate at US. Price this stock. Clearly show your calculations and forinulas

Answers

Price=Present value of dividends

here, cost of equity or required return is not given..Assuming it to be r

We see that the price of the stock is given as equal to

=5/(1+r)+5/(1+r)*(1.06/(1+r))+5/(1+r)*(1.06/(1+r))^2+5/(1+r)*(1.06/(1+r))^3+5/(1+r)*(1.06/(1+r))^4+5/(1+r)*(1.06/(1+r))^4*(0.97/(1+r))+5/(1+r)*(1.06/(1+r))^4*(0.97/(1+r))^2+5/(1+r)*(1.06/(1+r))^4*(0.97/(1+r))^3+5/(1+r)*(1.06/(1+r))^4*(0.97/(1+r))^4+5/(1+r)*(1.06/(1+r))^4*(0.97/(1+r))^5+5/(1+r)*(1.06/(1+r))^4*(0.97/(1+r))^5*1.02/(r-2%)

.

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