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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. Investors require a return of 10.5 percent on the company's stock.

Required:
a. What is the current stock price?
b. What will the stock price be in 3 years?
c. What will the stock price be in 15 years?

Respuesta :

Answer and Explanation:

The computation is shown below:

1.

Current price = D1 ÷ (Required return - Growth rate)

= (2.15 × 1.04) ÷ (0.105 - 0.04)

= $34.4

2. the stock price be in 3 years is  

= $34.4 × (1.04)^3

= $38.70

3. the stock price be in 15 years is  

= $34.4 × (1.04)^15

= $61.95

Hence, the same should be relevant for the above calculations