Question

Santa Klaus Toys just paid a dividend of $3.00 per share. The required return is 11.7 percent and the perpetual dividend growth rate is 3.9 percent. What price should this stock sell for five years from today?

Answer 1

P5=48.3860

Step-by-step explanation:

Santa Klaus Toys

The Price of the stock 5 years from today will be :

P5=D6/(r-g)=

D0*(1+g)^6/(r-g)

Where

D0 =3

g =3.9%

r=11.7%

Hence:

P5=3*(1+3.9%)^6/(11.7%-3.9%)

P5=3*(1+0.039)^6/(0.117-0.039)

P5=3*(1.039)^6/(0.078)

P5=3.77410/0.078

P5=48.3860