Exhibit 11.4
Use the Information Below for the Following Problem(S)
Davenport Corporation's last dividend was $2.70 and the directors expect to maintain the historic 3 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 5 percent for the next three years and the stock will then reach $25 per share.
-Refer to Exhibit 11.4.How much should you be willing to pay for the stock if you require a 17 percent return?
A) $16.97
B) $22.16
C) $21.32
D) $32.63
E) $23.63

Question

Quizplus · Accepted Answer

$$\begin{aligned}
P & = \frac { 2.7 ( 1.05 ) } { 1.17 } + \frac { 2.7 ( 1.05 ) ^ { 2 } } { ( 1.17 ) ^ { 2 } } + \frac { 2.7 ( 1.05 ) ^ { 3 } } { ( 1.17 ) ^ { 3 } } + \frac { 25.00 } { ( 1.17 ) ^ { 3 } } \
& = \$ 22.16
\end{aligned}$$

Exhibit 11.4 Use the Information Below for the Following Problem(S)