Question

Nu-Tek is expanding rapidly. As a result, the company expects to pay annual dividends of $.62, .80, and $1.05 per share over the next three years, respectively. After that, the dividend is projected to increase by 4 percent annually. What is the current value of this stock if the required return is 16 percent?

Answer 1

Answer:

The current value of this stock if the required return is 16 percent is $7.63.

Explanation:

Statemnet showing Current Price    

Particulars                     Time   PVf16%      Amount    PV

Cash inflows (Dividend)     1.00    0.8621        0.62            0.53

Cash inflows (Dividend)     2.00     0.7432        0.80    0.59

Cash inflows (Dividend)     3.00     0.6407  1.05     0.67

Cash inflows (Price)      3.00      0.6407  9.10     5.83

Current Price of Stock                                        7.63

Therefore, The current value of this stock if the required return is 16 percent is $7.63.