Hot Wings, Inc., has an odd dividend policy. The company has just paid a dividend of $8.75 per share and has announced that it will increase the dividend by $6.75 per share for each of the next four years, and then never pay another dividend. Required: If you require a return of 13 percent on the company’s stock, how much will you pay for a share today?

$70.18

Explanation:

in order to determine the current price of the stock we need to discount the future cash flows:

CF1 = $8.75 + $6.75 = $15.50

CF2 = $15.50 + $6.75 = $22.25

CF2 = $22.25 + $6.75 = $29

CF4 = $29 + $6.75 = $35.75

stock's price = $15.50/1.13 + $22.25/1.13² + $29/1.13³ + $35.75/1.13⁴ = $13.72 + $14.43 + $20.10 + $21.93 = $70.18

Since the company will not distribute any more dividends in the future, then your calculations must stop at year 4.

the answer is     d. in our global economy, most job growth will be in services, but manufacturing jobs will exist, too.

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