Problem 8-1 Stock Values [LO1] The Jackson-Timberlake Wardrobe Co. just paid a d

Question

Problem 8-1 Stock Values [LO1] The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.20 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 percent on the company's stock. What is the current stock price? (Do not round intermediate calculations and round your answer to2 decimal places, e.g., 32.16.) Current price What will the stock price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price What will the stock price be in 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price

Explanation / Answer

D0 = 1.2

D1 = 1.2 * (1.04)

P0 = 1.2 * (1.04)/ (10% - 4%)

P0 = 20.80

Part 2:

P3 = D4/ (10% - 4%)

P3 = 1.2 * (1.04)4/ (10% - 4%)

P3 = 23.40

Part 3:

P10 = D11/ (10% - 4%)

P10 = 1.2 * (1.04)11/ (10% - 4%)

P10 = 30.79

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