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shouldn't it be (P/F,15%,2) to calculate the present value of all dividends from 3 ? A company recently paid a dividend of $1 per share.
shouldn't it be (P/F,15%,2) to calculate the present value of all dividends from 3 ?
A company recently paid a dividend of $1 per share. Projections indicate that the dividend will be $2 per share at the end of this year and $3 the year after. In subsequent years, it is projected that dividends will grow at an annual rate of 10 percent indefinitely. If a return on investment of at least 15 percent is required, what maximum price should be paid to purchase such a share? The maximum purchase price is the present value of all future benefits evaluated at a discount rate of 15 percent, the required return on investment. PV=2(P/F,15%,1)+3(P/C,15%,10%,)(P/F,15%,1)=2(0.8696)+3[1/(0.150.10)](0.8696)=$53.92Step by Step Solution
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