Answer:
The current value of the share is $5.68.
Explanation:
To determine the stock's present price, we utilize the dividend discount model (DDM), which assesses the stock based on the current worth of projected dividends.
The formula to calculate today's stock price is:
P0 = D1 / (1+r) + D2 / (1+r)^2 +... + Dn / (1+r)^n + Terminal value / (1+r)^n
If dividends are expected to grow consistently, the terminal value is calculated when the growth rate becomes constant:
Terminal value = Dn * (1+g) / (r - g)
Where,
- g represents the constant growth rate for dividends
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P0 = 0.65 / (1+0.145) + 0.70 / (1+0.145)^2 + 0.75 / (1+0.145)^3 +
(((0.75 * (1+0.02) / (0.145 - 0.02)) / (1+0.145)^3
Final calculation yields P0 = $5.678, rounded to $5.68.
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