Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend...

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Lifecycle Motorcycle Company is expected to pay a dividend inyear 1 of $2, a dividend in year 2 of $3, and a dividend in year 3of $4. After year 3, dividends are expected to grow at the rate of7% per year. An appropriate required return for the stock is 12%.Using the multistage DDM, the stock should be worth __________today.

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As per dividend discount model,current value of stock is the present value of dividend.

Step-1:Present value of dividend of three years

Year	Dividend	Discount factor	Present value
a	b	c=1.12^-a	d=b*c
1	$ 2	0.8929	$ 1.79
2	$ 3	0.7972	$ 2.39
3	$ 4	0.7118	$ 2.85

Total			$ 7.02

Step-2:Present value of dividend after year 3

Present value		=	D3(1+g)/(Ke-g)DF3			Where,
		=	$ 60.93			D3	$ 4
						g	7%
						Ke	12%
						DF3	0.7118


Step-3:Present value of all dividends

Present value of all dividends		=	$ 7.02	+	$ 60.93
		=	$ 67.95

So, value of stock today is			$ 67.95

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Lifecycle Motorcycle Company is expected to pay a dividend inyear 1 of $2, a dividend in year 2 of $3, and a dividend in year 3of $4. After year 3, dividends are expected to grow at the rate of7% per year. An appropriate required return for the stock is 12%.Using the multistage DDM, the stock should be worth __________today.

Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend...

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