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life long floors is ecpected to pay and annual divident of $8 a share and plans on increasing future dividents by 4 percent annually. THe discount rate is 16 percent. What will be the value of this stock be 5 years from today

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jepessoa

Answer:

$81.11

Explanation:

the formula used to calculate stock price is the dividend discount model:

P₀ = Div₁ / (Re - g)

in this case, we need to find P₅, so we need to determine Div₆ first.

Div₁ = $8

Div₂ = $8.32

Div₃ = $8.65

Div₄ = $9

Div₅ = $9.36

Div₆ = $9.73

P₅ = $9.73 / (16% - 4%) = $81.11

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