Respuesta :
Answer:
$[tex]8.29$[/tex], is the right answer.
Explanation:
Let's assume that, there are three stages of growth therefore three stage dividend discount formula is being used.
Dividend (D1) = 2
The negative growth is of 5%
[tex]D1=2(1-0.05)=1.90[/tex]
The present value of D1 =2
[tex]P(D1)=\frac{1.90}{1+0.1}=1.72[/tex]
[tex]D2=1.95*0.95=1.85[/tex]
[tex]P(D2)= \frac{1.85}{(1+.1)^{2}}[/tex]
[tex]P(D2)=1.52[/tex]
SECOND PERIOD OF ZERO GROWTH FOR TWO YEARS
[tex]D3=1.85 \\P(D3)= \frac{1.85}{(1+.1)^{3}}[/tex]
[tex]P(D3)=1.38\\P(D4)=1.26[/tex]
THREE PERIOD IS CONSTANT GROWTH 6%
[tex]D5=1.85(1+.06)=1.961 \\P(D5)= \frac{1.961}{(1+.1)^5} \\P(D5)=1.21 \\D6=1.961 \times 1.06==2.07 \\P(D6)=\frac{2.07}{(1.1)^6} \\P(D6)=1.17[/tex]
The equity values are = P(D1)+P(D2)+P(D3)+P(D4)+P(D5)+P(D6)
Equity values = [tex]1.72+1.52+1.38+1.26+1.21+1.17=8.29[/tex]
Therefore, the current price will be $[tex]8.29$[/tex]
