question archive The MacHardee Plumbing Company has common stock outstanding
The MacHardee Plumbing Company has common stock outstanding
Subject:AccountingPrice:3.87 Bought7
The MacHardee Plumbing Company has common stock outstanding. The stock paid a dividend of $2.00 per share last year, but the company expects that earnings and dividends will grow by 25% for the next two years before dropping to a constant 9% growth rate afterward. The required rate of return on similar common stocks is 13%. What is the per-share value of the company's common stock?
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Answer:
| D1 | 2*125% | 2.5 | |
| D2 = | 2.5*125% | 3.125 | |
| D3= | 3.125*109% | 3.41 | |
| Price = | Di/(1+Ke)^1+D2/(1+Ke)^2+D3/(1+Ke)^2(Ke-g) | ||
| 2.5/(1.13)+3.125/(1.13)^2+3.41/(1.13)^2(.13.09) | |||
| 2.5*.885+3.125*.783+3.41*.783*25 | |||
| 2.21+2.45+66.76 | |||
| $71.43 | |||
| The Price of the Share is $ 71.43 | |||
