You expect a company to pay dividends of 12,15, and 20 per...

You expect a company to pay dividends of $12, $15, and $20 per share over the next 3 years. You expect the dividend payments to grow at a constant rate of 5% after that. What would you pay for the stock today if you require a return of 10%?r g10% 5%(1) Use Excel to fill in the next 500 cash flows from the stock Year Dividend 1 2 3 4 5 6 7 8 9 10 11(2) Name all the dividends DIVS and use the NPV function to find th(2) Find the TV using the assumption that constant growth after year The T(3) Name the dividends from 4-500 DIVS4 and use the NPV function to(4) List all the expected cash flows from the stock below, replacing div Year Cash Flow 1 2

Transcript

00:01 Hi, here for the given question we are given that we need to calculate the present value of the 20 dividends.

00:10 So here in our case first of all we will write down the formula for the present value which is pv equals to summation of dividend divided by 1 plus r to the power t.

00:24 So here in our case pv stands for present value, dividend is the dividend payment, r is the annual rate of interest and t is the number of years.

00:34 So here from the details given in the question for first 10 years we can say that pv1 is equal to summation, here we have 1 divided by 1 plus 0 .08 to the power t.

00:51 So now here we are talking for t equals to 1 to 10 years.

00:57 So pv1 is equal to 1 divided by 1 plus 0 .08 to the power 1 plus 1 divided by 1 plus 0 .08 to the power 2 continued up to 10th term.

01:12 So 1 divided by 1 plus 0 .08 to the power 10.

01:17 So here now on calculating this using the value of sum of geometric series we can say that pv1 is equal to 6 .7101.

01:28 Now similarly we need to calculate for next 10 years.

01:32 So here for second 10 year gap we can say that we have pv2 equals to summation of 2 divided by 1 plus 0 .08 to the power t.

01:44 Now here also t is from 11 to 20 years.

01:48 So here substituting the values in our formula we have pv2 is equal to 2 multiplied with 1 minus, i am directly substituting the value in the geometric series formula.

02:04 So 1 minus 1 plus 0 .08 to the power minus 10 divided by 0 .08.

02:13 So here calculating this we have pv2 equals to 13 .4202...

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