Question

Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually. The discount rate is 15 percent. What will the value of this stock be 5 years from

Answer 1

the value of this stock be 5 years from today is $7.10

Step-by-step explanation:

The computation of the value of the stock be 5 years from today is as follows:

D6 is

= D0 × (1 + 2%)^6

= $0.82 × (1 + 2%)^6

= 0.923453184

Now the price at year 5 is

= 0.923453184 ÷ (15% - 2%)

= $7.103486031

Hence, the value of this stock be 5 years from today is $7.10