Answer: price of the stock = $ 43.24
Working notes for the above answer is as under
| Last year devidedn |
Growth | Dividend for the year | |
| D1 | 2.5 | 1.2 | 3 |
| D2 | 3 | 1.2 | 3.6 |
| D3 | 3.6 | 1.2 | 4.32 |
| D4 | 4.32 | 1.05 | 4.536 |
Now we will calculate Price at year 3
P3 = D4 / r-g
=4.536 /0.13 -0.05
=4.536 /0.08
P3 =56.7
We find the present values for 3 year dividend and P3
| Dividend/ Value |
Pv factor@13% |
Prasent Value |
|
| D1 | 3 | 0.884956 | 2.654867 |
| D2 | 3.6 | 0.783147 | 2.819328 |
| D3 | 4.32 | 0.69305 | 2.993977 |
| P3 | 56.7 | 0.613319 | 34.77517 |
| 43.24334 |
