CB$340$

Chapter $8$ Assignment Name

A company has just opened and plans to pay no dividends after the first year. In the next year they will pay $$2\mathrm{.}00$ per share and $$2\mathrm{.}50$ after year three. Dividends will grow by $4\%$ each year after that.

What price should the shares trade at today?

Year $1$ dividend $(D1)=$$$0($no dividends$)$

year $2$ dividend $(D2)=$$$2\mathrm{.}00$

Year $3$ dividend $(D_3)=$$$2\mathrm{.}50$

Dividend. growth rate $(g)=4\%,(0,04)$

Required rate of return $(r)$ is not Provided

So w$$ll assume $1$t$\text{'}$s $10\%\frac{0\mathrm{.}10}{(1+0\mathrm{.}10{)}^2}=$$$1\mathrm{.}6529$

$D_2=D\frac{2}{(1+r{)}^2}$

$D_3=\frac{2\mathrm{.}50}{(1+0\mathrm{.}10{)}^2}=$$$1\mathrm{.}8608$

present value of all fature divi

$1$

Ans: Therefore, the price the shares should trade at today, is approximately $$32\mathrm{.}09.$

Immediately after the year$-3$ dividend, what price should the shares trade at$?$ Answer bith qestions?