Question

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.40 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 12 percent on the company's stock. a. What is the current stock price

Answer 1

Missing word "What will the stock price be in three years?"

a. Current price = D0*(1+g)/(Ke-g)

Current price = 1.4*(1+0.05) / (0.12-0.05)

Current price = 1.4*1.05 / 0.07

Current price = 1.47 / 0.07

Current price = $21

b. Current price = D0*(1+g)/(Ke-g)

Current price = 1.4*(1+0.05)^4 / (0.12-0.05)

Current price = 1.4*1.05^4 / 0.07

Current price = 1.4*1.21550625 / 0.07

Current price = 1.70171 / 0.07

Current price = 24.310143

Current price = $24.31