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mz technologies’ dividend growth is expected to decline gradually. for the next four years, the growth is expected to be 20%. in years 5,6 and 7 it is expected to grow at 16%, 12% and 8%. during year 8 and beyond, dividends are expected to grow at 5% for perpetuity. assume the last dividend paid was $1 (a moment ago) and the required rate of return is 10%. what is the current price?

Respuesta :

Answer:

$9.00

Explanation:

Note: See the attached file for the calculation of PV of year 1 to 7 dividends.

Price at year 7 = year 8 dividend / (Rate of return - Perpetual growth rate) =  (0.5747245056 * 1.05) / (10% - 5%) = $12.0692146176

PV of price at year 7 = $12.0692146176 / (1.10)^7 = $6.19341546169015

Current price = Sum of PV of years 1 to 7 dividends + PV of price at year 7 = $2.81096656749202 + $6.19341546169015 = $9.00

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