Problem 7-17 Nonconstant Dividends [LO 1] Apocalyptica Corporation is expected t

Question

Problem 7-17 Nonconstant Dividends [LO 1]

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.10, $16.10, $21.10, and $2.90. Afterwards, the company pledges to maintain a constant 5.25 percent growth rate in dividends, forever.

If the required return on the stock is 7 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.10, $16.10, $21.10, and $2.90. Afterwards, the company pledges to maintain a constant 5.25 percent growth rate in dividends, forever.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Current Share Price = 5.10/(1+.07)^1 + 16.10/(1+.07)^2 + 21.10/(1+.07)^3 + 2.90/(1+.07)^4 + 2.90*(1+.0525)/(.07 - .0525)*(1+.07)^4 = $171.32

Answer is $171.32.

Thanks.

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