Answer :the current share price = $ 53.3187
Working notes for the above answer:
We have provided with the information that
Bare Corporation is expected to pay the following dividends over the next 3 years: $4.87, $10 and $3.60.
Afterwards, the company pledges to maintain a constant 5 percent growth rate in dividends forever.
So g after 3 years will be 5%
If the required return on the stock is 12 percent,
The current share price will be calculated as follow
P3 = D4(1 + g) / (R – g)
= $3.6(1.05) / (.12 – .05)
= $54
P0 = $4.87 / 1.12 + $10.00 / (1.12)2 + $3.60 /( 1.12)3 + $54 / (1.12)3
| Year | 1 | 2 | 3 | 3 | Total |
| 4.87 | 10 | 3.6 | 54 | ||
| 1.12 | 1.2544 | 1.404928 | 1.404928 | ||
| Total | 4.348214 | 7.971939 | 2.562409 | 38.43613 | 53.3187 |
the current share price = $ 53.3187
