Problem 6-1 Stock Values The Herjavec Co. just paid a dividend of $1.70 per shar
ID: 2784899 • Letter: P
Question
Problem 6-1 Stock Values
The Herjavec Co. just paid a dividend of $1.70 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. Investors require a return of 15 percent on the company's stock.
What is the current stock price? (Do not round intermediate calculations and round your answer to 2 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 twenty years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Stock price $
Explanation / Answer
D0 = 1.7
P0 = D1/ (Required Rate - Growth Rate)
P0 = 1.7 * 1.05/ (15% - 5%)
P0 = 17.85
P3 = D4/ (Required Rate - Growth Rate)
P3 = 1.7 * 1.054/ (15% - 5%)
P3 = 20.66
P20 = D21/ (Required Rate - Growth Rate)
P20 = 1.7 * 1.0520/ (15% - 5%)
P20 = 45.11