The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.30 per share on its stock. The...
Free
80.2K
Verified Solution
Link Copied!
Question
Finance
The Jackson-Timberlake Wardrobe Co. just paid a dividend of$1.30 per share on its stock. The dividends are expected to grow ata constant rate of 5 percent per year indefinitely.
a. If investors require a return of 12 percent on the company'sstock, what is the current price?
b. What will the price be in 6 years?
The Jackson-Timberlake Wardrobe Co. just paid a dividend of$1.30 per share on its stock. The dividends are expected to grow ata constant rate of 5 percent per year indefinitely.
a. If investors require a return of 12 percent on the company'sstock, what is the current price?
b. What will the price be in 6 years?
Answer & Explanation Solved by verified expert
Information provided:
Current dividend = $1.30
Growth rate of dividends= 5%
Required rate of return= 12%
The question is solved using the dividend discount model.
a.Price of the stock today=D1/(r-g)
where:
D1=next dividend payment
r=interest rate
g=firm’s expected growth rate
Current price of stock= $1.30*(1+0.05)/ 0.12 – 0.05
= $1.3650/ 0.07
= $19.50.
Therefore, the current price is $19.50.
b.Price of stock in 6 years: $19.50*(1+0.05)^6 = $26.13.
Therefore, the stock price in 6 years is $26.13.
In case of any query, kindly comment on the solution.
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Transcribed Image Text
The Jackson-Timberlake Wardrobe Co. just paid a dividend of$1.30 per share on its stock. The dividends are expected to grow ata constant rate of 5 percent per year indefinitely.a. If investors require a return of 12 percent on the company'sstock, what is the current price?b. What will the price be in 6 years?
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.