Question

Phillips Co. currently pays no dividend. The company is anticipating dividends of $.02, $.05, $.10, $.20, and $.30 over the next 5 years, respectively. After that, the company anticipates increasing the dividend by 3.5 percent annually. One step in computing the value of this stock today is to compute the value of:_________

a) P5.
b) P3.
c) P1.
d) P6.
e) P4.

Answer 1

a) P5.

Step-by-step explanation:

The formula to calculate the current price stock is as follow:

P0 = D1/(1+Ke)^1 + D2/(1+Ke)^2 + D3/(1+Ke)^3 + D4/(1+Ke)^4 + D5/(1+Ke)^5 + P5/(1+Ke)^5

The Price of share is P

The dividend is D

The required rate of return is Ke