contestada

Reddick Enterprises' stock currently sells for $35.50 per share. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today? $38.83 $39.83 $40.85 $41.69

Respuesta :

TomShelby

Answer:

$41.69

Explanation:

[tex]\frac{divends}{return-growth} = Intrinsic \: Value[/tex]

Assuming the shares is on point and is not overrated or underrated we can solve for dividends

dividends/(r-g) = 35.50

dividends = 1.2425

Now we apply the growth for 3 years

[tex]Principal * (1+ r)^{time} = Ammount[/tex]

[tex]1.2425 (1.055)^{3}= 1.4589949084375[/tex]

Then we apply the dividend growth model

1.4589949084375/(0.09-0.055) = 41.68556881 = 41.69