Fuji Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 15 percent and the company just paid a dividend of $3.55, what is the current share price

Current price of stock=$84.86

Explanation:

The value of a stock, using the dividend valuation model, is the Present value (PV) of its future cash flows discounted at the required rate of return.

The price of the share would be determined as follows:

Year                                          PV of Dividend

1      3.55 × 1.26^1 × 1.15^-1     = 3.89

2       3.55 × 1.26^2 × 1.15^-2  =  4.26

3       3.55 × 1.26^3 × 1.15^-3   = 4.67

Year 4 and beyond

This will be done in two steps

Step 1- PV of dividend in year 3 terms

PV = D×(1+g)/r-g

D- dividend in year 3- , g- growth rate -8%, r- rate of return

PV = (3.55 × 1.26^3 × 1.08)/(0.15-0.08)=109.563

Step 2: PV of dividend in year 0 terms

PV = D× (1+r)^-n

D = PV of dividend in year 3, r-rate of return , n- number of years

PV = 109.563  ×  1.15^(-3)= 72.039

Current price of stock = 3.89  + 4.26  + 4.67  + 72.039 = 84.86

Current price of stock=$84.86

both are integral parts of a corporate balance sheet. the cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. the income statement measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period (in fact, it's sometimes called a statement of financial performance).

a cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. it captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. the cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of credit. a cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors.