Question

Keidis Industries will pay a dividend of $3.75, $4.85, and $6.05 per share for each of the next three years, respectively. In four years, you believe that the company will be acquired for $55.00 per share. The return on similar stocks is 10.5 percent. What is the current stock price?

Answer 1

$48.74018623

Step-by-step explanation:

The computation of the current stock price is shown below:-

Current Stock Price = Dividend + (1 + rate of return)^number of years and so on

$3.75 ÷ (1 + 0.105)^1 + $4.85 ÷ (1 + 0.105)^2 + $6.05 ÷ (1 + 0.105)^3 + $55 ÷ (1 + 0.105)^4

= $3.75 ÷ (1.105)^1 + $4.85 ÷ (1.105)^2 + $6.05 ÷ (1.105)^3 + $55 ÷ (1.105)^4

= ($3.75 ÷ 1.105) + ($4.85 ÷ 1.221025) + ($6.05 ÷ 1.349232625 ) + (55 ÷ 1.490902051 )

= $3.393665158 + $3.972072644 + $4.484030321 + $36.8904181

= $48.74018623