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The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.55 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. Investors require a return of 14 percent on the company's stock. a. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the stock price be in 3 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What will the stock price be in 7 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.55 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. Investors require a return of 14 percent on the company's stock. a. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the stock price be in 3 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What will the stock price be in 7 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer:(A) 20.54(B) 24.46(C) 30.88Explanation:(A) The current stock price can be calculated as followsPo= 1.55(1+6/100)/(14/100-6/100)= 1.55(1+0.06)/(0.14-0.06)= 1.55(1.06)/0.08=1.643/0.08= 20.54(B) The stock price after 3 years can be calculated as followsPo = 1.55(1+6/100)^4/(14/100-6/100)= 1.55(1+0.06)^4/(0.14-0.06)= 1.55(1.06)^4/0.08= 1.55(1.2624)/0.08= 1.9567/0.08= 24.46(C) The stock price after 7 years can be calculated as followsPo= 1.55(1+6/100)^8/(14/100-6/100)= 1.55(1+0.06)^8/(0.14-0.06)= 1.55(1.06)^8/(0.08)= 1.55(1.5938)/0.08= 2.470/0.08= 30.88...
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