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Homework answers / question archive / Kingston, Inc
Kingston, Inc., just paid a dividend of $3.40 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year, indefinitely. Investors require a return of 13 percent on the stock for the first three years, a rate of return of 11 percent for the next three years, and then a return of 9 percent thereafter.
What is the current share price for the stock?
Computation of Current Share Price of Stock:
Current Share Price of Stock = 3.40*(1.05/1.13)+3.40*(1.05/1.13)^2+3.40*(1.05/1.13)^3+3.40*(1.05/1.13)^3*(1.05/1.11)+3.40*(1.05/1.13)^3*(1.05/1.11)^2+3.40*(1.05/1.13)^3*(1.05/1.11)^3+3.40*(1.05/1.13)^3*(1.05/1.11)^3*1.05/(9%-5%)
Current Share Price of Stock = $76.76
