Question

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $6.30, $17.30, $22.30, and $4.10. Afterward, the company pledges to maintain a constant 5.75 percent growth rate in dividends, forever. If the required return on the stock is 8 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price

Answer 1

The current price per share is $183.02

Step-by-step explanation:

The current share price can be calculated using the Dividend Discount Model that bases the share price on the present value of the expected future dividends from the share.

P0 = 6.3 / (1+0.08) + 17.3 / (1+0.08)^2 + 22.3 / (1+0.08)^3 + 4.10 / (1+0.08)^4 + [ (4.1 * (1+0.0575) / (0.08 - 0.0575)) / (1+0.08)^4 ]

P0 = $183.02