Question

Chamberlain Corporation is expected to pay the following dividends over the next four years: $12, $8, $7, and $2.50. Afterward, the company pledges to maintain a constant 5% growth rate in dividends forever. If the required return on the stock is 12%, what is the current share price?

Answer 1

Answer:

Current Share price = $47.50

Explanation:

See the below image to get the proper answer

Answer 2

The current share price of the Chamberlain Corporation is $47.50.

Firstly, we have to derive the Value after year 4 to derive the current share price.

• The formula for Value after year 4 is (D4*Growth rate) / (Required return-Growth rate)

Value after year 4 = ($2.5*1+0.05)/(0.12 - 0.05)

Value after year 4 = ($2.5*1.05) / 0.07

Value after year 4 = $2.625 / 0.07

Value after year 4 = $37.50

• The formula for Current price Is Future dividend & Value*Present value of discounting factor(rate%,time period)

Current price = ($12/1.12) + ($8/1.12^2) + ($7/1.12^3) + ($2.5/1.12^4) + ($37.5/1.12^4)

Current price = $47.50

See similar solution here

brainly.com/question/17000364