InterTune, Inc., just paid a dividend of $3.00 per share. You expect the dividend to increase...

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Finance

InterTune, Inc., just paid a dividend of $3.00 per share. Youexpect the dividend to increase by 15% next year, 10% the followingtwo years, and then 4% indefinitely thereafter. If you require arate of return of 10%, what is the most you should be willing topay for a share of InterTune stock?

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most you should be willing to pay for a share of InterTune stock	63.77
Statemnet showing Current Price
Particulars	Time	PVf 10%	Amount	PV
Cash inflows (Dividend) = 3*1.10	1.00	0.9091	3.4500	3.14
Cash inflows (Dividend)	2.00	0.8264	3.7950	3.14
Cash inflows (Dividend)	3.00	0.7513	4.1745	3.14
Cash inflows (Price)	3.00	0.7513	72.3580	54.36
Current Price of Stock				63.77

P3= D4/ke-g
P3 = 4.1745*1.04/(10%-4%)
P3 = 4.3415/6%
P3 = $72.358

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InterTune, Inc., just paid a dividend of $3.00 per share. Youexpect the dividend to increase by 15% next year, 10% the followingtwo years, and then 4% indefinitely thereafter. If you require arate of return of 10%, what is the most you should be willing topay for a share of InterTune stock?

InterTune, Inc., just paid a dividend of $3.00 per share. You expect the dividend to increase...

Free

60.1K

Verified Solution

Question

Finance

InterTune, Inc., just paid a dividend of $3.00 per share. Youexpect the dividend to increase by 15% next year, 10% the followingtwo years, and then 4% indefinitely thereafter. If you require arate of return of 10%, what is the most you should be willing topay for a share of InterTune stock?

Answer & Explanation Solved by verified expert

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