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1 July, 23:43

The Herjavec Co. just paid a dividend of $1.85 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's stock. What is the current price? What will be the price in three years?

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  1. 2 July, 00:02
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    Current price : $24.05

    Price in 3 years : $27.05

    Explanation:

    The Current stock price of Herjavec Co will be determined by the formula given below;

    Po = [Do (1 + g) ] / (r - g)

    Po = Current price

    Do = Current dividend

    r = Rate of return

    g = growth of dividend

    Po = ($1.85 * 1.04) / (0.12 - 0.04)

    Po = $1.924 / 0.08

    Po = $24.05.

    The stock price of Herjavec Co after 3 years will be determined by the formula given below;

    P3 = Do (1 + g) ^4 / (r - g)

    P3 = [$1.85 * (1.04) ^4] / (0.12 - 0.04)

    P3 = $27.05
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