Question

Analysts expect Placer Corp. to pay shareholders $2.25 per share annually for the next five years. After that, the dividend will be $3.50 annually forever. Given a discount rate of 12%, what is the value of the stock today

Answer 1

Answer:

$24.66

Explanation:

Calculation to determine the value of the stock today

First step is to calculate the PVP

PVP = $3.50 / .12

PVP= $29.17

Second step is to calculate the PV

PV = $29.17 / 1.125

PV= $16.55

Third step is to calculate the PVA

PVA = $2.25 {[1 - (1 / 1.125)] / .12}

PVA= $8.11

Now let calculate the value of the stock today

Using this formula

Price=PV+PVA

Let plug in the formula

Price = $16.55 + 8.11

Price= $24.66

Therefore the value of the stock today is $24.66