Problem 1: Non-Constant Growth Stock JB Technologies is expected to pay a dividend of $2.10 per share next year, 2.70 on year 2, and 53 50 on year 3. After that, dividends will have a constant growth of 2% annually. The required rate of return for this stock is 8%. Given this information, what would be the sh share price for this firm? Mint: There are two sets of cash flows here that need to be valued separately and then added together. The dividends for the first three years area non constant flow of cash (meaning there is not pattern to the growth) Non-constant dividends are treated just like unequal cosh flows and you value them using the NPV formula in excel. The other set of cash flows from year 4 and into the future are a set of constant growth dividends and are valued wing the constant (Gordon)growth model. Also, being that this set of cash flows begins 4 years in the future, once you calculate the value oricel you hove a vis years in the future. Therefore, you need to put thot volve into the PV formula and bring it to the same period as the first set of cash flows Thish explained on pages 309 and 310 of the text book Constant Growth Period Yeard Non constant widende Future dividends, compute Gordon Growth Formula Irears PO-0,7%. Year 2 To get bi dividend, you need to compute the year e dividend, Multiply NPER [reora the year 3 dividend by growth rate) RATE PV 3 FalAnswer Problem 1: Non-Constant Growth Stock JB Technologies is expected to pay a dividend of $2.10 per share next year, 2.70 on year 2, and 53 50 on year 3. After that, dividends will have a constant growth of 2% annually. The required rate of return for this stock is 8%. Given this information, what would be the sh share price for this firm? Mint: There are two sets of cash flows here that need to be valued separately and then added together. The dividends for the first three years area non constant flow of cash (meaning there is not pattern to the growth) Non-constant dividends are treated just like unequal cosh flows and you value them using the NPV formula in excel. The other set of cash flows from year 4 and into the future are a set of constant growth dividends and are valued wing the constant (Gordon)growth model. Also, being that this set of cash flows begins 4 years in the future, once you calculate the value oricel you hove a vis years in the future. Therefore, you need to put thot volve into the PV formula and bring it to the same period as the first set of cash flows Thish explained on pages 309 and 310 of the text book Constant Growth Period Yeard Non constant widende Future dividends, compute Gordon Growth Formula Irears PO-0,7%. Year 2 To get bi dividend, you need to compute the year e dividend, Multiply NPER [reora the year 3 dividend by growth rate) RATE PV 3 Fal
