How do I get the Pt number of $$86\mathrm{.}25?$

Darnell

What about Kraft Heinz. They currently pay an annual dividend of $$5\mathrm{.}72$ and we expect that to grow at a constant rate of

$3\mathrm{.}4\%.$ Assuming the market requires $a(n)9\mathrm{.}8\%$ return from Kraft Heinz, what is their stock worth? $($Hint: Round

intermediate calculations and answer to $2$ decimal places$)$

That was the third incorrect attempt.

The stock will be valued at $$92\mathrm{.}41.$

$\frac{D0(1+g)}{R-g}=$

$\frac{\text{\$}5\mathrm{.}91}{0\mathrm{.}098-0\mathrm{.}034}=$$$92\mathrm{.}41$

Correct Answer:

$$92\mathrm{.}41$

It seems risky to assume they will always increase their dividend in the future.

Darnell

Good point. How much is their stock worth if they were to stop growing their dividend at $3\mathrm{.}4\%$ after $3$ years and instead

grow at $2\mathrm{.}3\%$ after that, indefinitely? $($Hint: Round intermediate calculations and answer to $2$ decimal places$)$

The stock will be valued at $$79\mathrm{.}95.$

$=\frac{D1}{R-g1}[1-(\frac{1+g1}{1+R}{)}^t]+\frac{Pt}{(1+R{)}^t}$

$=\frac{5\mathrm{.}72(1+0\mathrm{.}034)}{0\mathrm{.}098-0\mathrm{.}034}[1-(\frac{1+0\mathrm{.}034}{1+0\mathrm{.}098}{)}^3]+\frac{86\mathrm{.}25}{(1+0\mathrm{.}098{)}^3}$

$=92\mathrm{.}410\mathrm{.}16+65\mathrm{.}16$

$=$$$79\mathrm{.}95$