The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The company is planning on paying $3.00, $5.00, $7.50, and $10.00 a share over the next four years, respectively. After that
The dividend will be a constant $2.50 per share per year. What is the market price of this stock if the
Market rate of return is 15%?

Question

Quizplus · Accepted Answer

The market price of the stock is calculated by finding the present value of the expected dividends. The dividends for the first four years are $3.00, $5.00, $7.50, and $10.00. After that, the dividend is constant at $2.50. The present value of these dividends, discounted at the market rate of return of 15%, gives the market price of the stock as $26.57.