Netscrape Communications does not currently pay a dividend. You expect the compa
ID: 2384438 • Letter: N
Question
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a $4 per share dividend in 14 years, and you expect dividends to grow perpetually at 5 percent per year thereafter. If the discount rate is 13 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a $4 per share dividend in 14 years, and you expect dividends to grow perpetually at 5 percent per year thereafter. If the discount rate is 13 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
Stock Price in 13 Years = Expected Dividend in Year 14/(Discount Rate - growth rate)
Stock Price in 13 Years = 4/(13%-5%)
Stock Price in 13 Years = $ 50
Stock currently worth = Stock Price in 13 Years/(1+discount rate)^13
Stock currently worth = 50/1.13^13
Stock currently worth = $ 10.21
Answer
Stock Currently worth = $ 10.21