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8.45 x 1.3 = 10.985

The price at Time 3 can be calculated as:

P3 = D3 x (1 + g )/(R - g) where g is the long-run growth rate. So we have: P3 = $10.985 x 1.10/(.20 - .10) = $120.835

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

III. Valuation of Future Cash Flows

8. Stock Valuation

© The McGraw-Hill Companies, 2002

CHAPTER 8 Stock Valuation

To determine the value today, we need the present value of this amount plus the present value of the total dividends:

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