Respuesta :
The stock sell for today is $9.311.
The present value of the stock is the discounted value of all the future cash flows i.e. the dividends paid ahead in the future.
Next year i.e. Year 1 dividend = $2.78
The dividend will grow by 4% thereafter for the next three years and no dividends paid after that. So there are total of 4 cash flows to be received from the stock as a dividend.
Year 1 dividend (D1) = $2.78
Year 2 dividend (D2) = 2.78*1.04 = 2.8912
Year 3 dividend (D3) = 2.8912*1.04 = 3.006848
Year 4 dividend (D4) = 3.006848*1.04 = 3.12712192
Year 5 dividend = 0 = Year 6 dividend = Year 7 .........
where the required return k = 10%
PV of stock = D1/(1+k) + D2/(1+k)^2 + D3/(1+k)^3 + D4/(1+k)^4 = $9.311.
Therefore, the stock sell for today is $9.311.
What is Dividend ?
Dividends refer to share of profits from a portion of company's earnings which is paid to a class of its shareholders. It can be issued in different forms, such as cash payment, stocks or any other form. An organization's dividend is decided by its board of directors and the shareholders’ approval is required.
Learn more about Stock Dividend on:
https://brainly.com/question/16902728
#SPJ4
