Answer:
1) $ 54.82
2) it will invest 451.80 dollars in the bank account
3) $74.36
4) $ 1.281,7
Explanation:
We solve for the current price of Goliath using the dividend growhth model:
[tex]\left[\begin{array}{ccc}Years&Cashflow&Discounted\\&&\\1&2&1.74\\2&2.6&1.97\\3&3.38&2.22\\3&74.36&48.89\\&total&54.82\\\end{array}\right][/tex]
After the third dividned the value of the future dividends growing at 10% is calcualte using the gordon model:
[tex]\frac{D_1}{r-g} = PV\\\frac{D_0(1+g)}{r-g} = PV\\[/tex]
3.38(1+0.10)/(0.15-0.1) = 74.36
Then we discount using the lump sum formula:
[tex]\frac{dividend}{(1 + rate)^{time} } = PV[/tex]
we use the rate of 15% which is the required return
10 shares x 54.82 = 548.2
1,000 - 548.2 = 451.8
At the third dividend is paid out the value of the shares will be of 74.36 as it is the discounted value of the futures dividends growing at 10%
10 shares x 74.36 = $743.6
451.8 capitalized during 3 years at 6%
[tex]Principal \: (1+ r)^{time} = Amount[/tex]
Principal 451.80
time 3.00
rate 0.06000
[tex]451.8 \: (1+ 0.06)^{3} = Amount[/tex]
Amount 538.10
Total: 538.10 + 743.6 = 1.281,7
