Question

Keidis Industries will pay a dividend of $4.95, $6.05, and $7.25 per share for each of the next three years, respectively. In four years, you believe that the company will be acquired for $67.00 per share. The return on similar stocks is 10.8 percent. What is the current stock price?

Answer 1

Current stock price = $59.18

Step-by-step explanation:

Current stock price = Present value of first three value+ Present value of terminal value

Current stock price = Dividend 1/(1+r)^1 + Dividend 2/(1+r)^2 + Dividend 3/(1+r)^3 + Terminal Value/(1+r)^4

Current stock price = $4.95/(1.108)+$6.05/(1.108)^2+$7.25/(1.108)^3 + $67/(1.108)^4

Current stock price = $4.46751 + $4.928059 + $5.329896 + $44.45450

Current stock price = $59.179965

Current stock price = $59.18