Fowler, inc., just paid a dividend of $2.40 per share on its stock. the dividends are expected to grow at a constant rate of 6.25 percent per year, indefinitely. assume investors require a return of 12 percent on this stock. a. what is the current price? (do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) b. what will the price be in four years and in sixteen years? (do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)

Po = 44.35

P4 = 56.52

P16 = 116.99

Explanation:

given data

dividend = $2.40 per share

constant rate = 6.25 percent per year

return = 12 percent

to find out

What is the current price and price be in four years and in sixteen years

solution

we will use here Gordon Growth Model

Po =        ..........................1

here Po is Current share price and Ke = Cost of equity and g is Growth rate in dividend

and D1 is Next year expected dividend i.e = 2.4 × 1.0625 = 2.55

so

Po =  

Po = 44.35

and

P4 =

P4 =

P4 = 56.52

and

P16 =  

P16 =

P16 = 116.99

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