Spendex Corporation pald a dividend of $1.06 per share today. Dividends are expected to grow at 11.00% per year for the next 3 years, then at 9.00% per year in the following 2 years. After the 5 th year, the growth in dividends is expected to remain constant at 5.00%. As an investor, you require a 11.00% rate of return on this equity investment. What is the maximum price you would be willing to pay for a share of Spendex? Answer format: Cumency: Round to: 2 decimal places. Spendex Corporation paid a dividend of 51 per share today. Dividends are expected to grow at 10% per year for the next 3 years, then at 8% per year in the following 2 years. After the 5 th year, the growth in dividends is expected to remain constant at 5%. As an investor, you require a 15% rate of returs on this equity investment. What is the maximum price you would be willing to pay for a share of Spendex? SOLUTION: Firut step: Find the value of all phase 1 dividends. (g=10% for year 13,g=8% for years 4 and 5) D1=D0x(1+g)=$11.10=$1.10D2=D1x(1+g)=$1.101.10=$1.21D1=D2(1+g)=$1.211.10=$1.33D4=D2(1+g)=$1.331.08=$1.44Ds=D4(1+g)=$1.441.00=$1.55P0=(1.15)n$1.10+(1.15)x$1.21+(1.15)3$1.33+(1.15)6$1.44+(1.15)5$1.55 Solving with FINANCIAL CALCULATOR: NPV = PV of dividends =$434 We know the dividend at year 5 is 51.55 . We will use this dividend to base our constant growth model. The infinite model works wherever constant erowth starts to eur model hecomes: PN=rgDN+1=rgDN(1+g) So our model gives us the selling price of the stock at time N. Applying to our problem: RS=.15.05$1.55(1.05)=$16.28 This is the selling price of the stock is FIVE years. We still need to discoust this back to TooAY. PV=(1+r)5FVs=(1.15)5516.28=5809 To finisk the problem, we seed to add the PV of Phase I to the PV of Phase II. P0=$434+$8.09=$12.43