Question
Stock ABC is expected to pay $1 dividends per share next year (i.e. one year from today, or the end of year 1) based on
Stock ABC is expected to pay $1 dividends per share next year (i.e. one year from today, or the end of year 1) based on the projected profits of its core business. Afterwards, dividends are expected to grow at a constant rate of 3% forever. The companys cost of equity is 10%.
In addition, the company is expected to receive payments from a patent lawsuit it won recently and plans to pay special dividends of $3 per share in years 3, 4, and 5 (i.e. $3 in year 3, $3 in year 4, and $3 in year 5; payments are made at the end of the year).
Based on the information above, what should be the stocks fair price per share today? Show your answer in $ and round to two decimals (e.g. $xx.xx).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started