Lohn corporation is expected to pay the following dividends over the next four years: $18, $14, $13, and $8.50. afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. if the required return on the stock is 14 percent, what is the current share price?
The current share price is $ 92.71
To reach the current share price you have to calculate first the value after year 4, hence:
Value after year 4 is= (Dividends4×Growth Rate)/(Required return-Growth Rate)
After having calculated the value after year 4, we can go on with the calculation of the current share price
Current share price is=Future dividends and value×Present value of discounting factor(rate%,time period)
= $ 92.71