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Sheridan Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, management expects the dividend growth rate to be constant at 7 percent. If the required rate of return is 16.00 percent, what is the current value of the stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

Respuesta :

Answer:

The current value of the stock is $33.35

Explanation:

The computation of the current value of the stock is shown below:

Particulars     Dividends   PVIF at 16%    Present value

Dividend 1      $5              0.862             $4.31

Dividend 2      $6.25       0.743               $4.64

Dividend 3       $4.75       0.641               $3.04

Dividend 4       $3            0.552              $1.66

Dividend 5        $3.21      

             ($3 × 1.07)

Price of the

stock in 4 years   $35.67    0.552            $19.70

               ($3.21 ÷ (16% - 7%))

Current value

of the stock                                               $33.35

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