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Today, 14:44

Santa Klaus Toys just paid a dividend of $3.00 per share. The required return is 11.7 percent and the perpetual dividend growth rate is 3.9 percent. What price should this stock sell for five years from today?

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  1. Today, 14:55
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    P5=48.3860

    Explanation:

    Santa Klaus Toys

    The Price of the stock 5 years from today will be:

    P5=D6 / (r-g) =

    D0 * (1+g) ^6 / (r-g)

    Where

    D0 = 3

    g = 3.9%

    r=11.7%

    Hence:

    P5=3 * (1+3.9%) ^6 / (11.7%-3.9%)

    P5=3 * (1+0.039) ^6 / (0.117-0.039)

    P5=3 * (1.039) ^6 / (0.078)

    P5=3.77410/0.078

    P5=48.3860
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