This question was created from 1292018402_Fundamentals_Part2-3 https://www.coursehero.com/file/21058528/1292018402-Fundamentals-Part2-3/

CX Enterprises has the following expected dividends: $1 in one year, $1.13 in 2 years, and $1.20 in 3 years. After that, its dividends are expected to grow at 5% per year forever (so that year 4's dividend will be 5% more than $1.20 and so on). If CX's equity cost of capital is 13%, what is the current price of its stock? How would i solve this ?

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- that answer is still incorrect
- mageban
- Jun 02, 2018 at 2:12pm

- I rechecked the calculations, it is correct
- payaljain3
- Jun 02, 2018 at 2:37pm

- so i enter 13.517 not 15.75+13.517
- mageban
- Jun 02, 2018 at 2:39pm

- Current price of stock = present values of future dividends and present value of stock price as per constant growth dividend, hence final answer for stock price is 13.52
- payaljain3
- Jun 02, 2018 at 2:41pm

- 15.75 is the stock price as on year3, hence when we want present values, we discount it by 1/((1+0.13)^3)
- payaljain3
- Jun 02, 2018 at 2:49pm