Maurer, Inc., has an odd dividend policy. The company has just paid a dividend o
ID: 2820809 • Letter: M
Question
Maurer, Inc., has an odd dividend policy. The company has just paid a dividend of $4 per share and has announced that it will increase the dividend by $4 per share for each of the next five years, and then never pay another dividend. If you require a return of 10 percent on the company’s stock, how much will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Maurer, Inc., has an odd dividend policy. The company has just paid a dividend of $4 per share and has announced that it will increase the dividend by $4 per share for each of the next five years, and then never pay another dividend. If you require a return of 10 percent on the company’s stock, how much will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Dividend in year 1 = 4 + 4 = 8
Dividend in year 2 = 8 + 4 = 12
Dividend in year 3 = 12 + 4 = 16
Dividend in year 4 = 16 + 4 = 20
Dividend in year 5 = 20+ 4 = 24
After the 5th year ni dividend received so further the value is Zero
Year Dividend PVF @ 10% PV of dividend received 1 8 0.909 7.273 2 12 0.826 9.917 3 16 0.751 12.021 4 20 0.683 13.660 5 24 0.621 14.902 Value of Share today = $ 57.77